We want to thank the New York Times for pointing out in an editorial today (January 13, 2013) that the “chained CPI” is a bad idea.†  As the editorial claimed, this attempt to lower Social Security benefits is based on bad math and bad logic.  Nevertheless, the flawed and unfair notion of suppressing cost of living increases with a “chained CPI,” is not the worst CPI problem facing retirees and workers. The way in which the CPI is calculated now and has been calculated for a considerable time in the past is a much bigger problem.

It is time that we have an honest conversation in this country about the statistically and scientifically flawed – absurdly flawed – methodology for determining the overall increase in the cost of living.  In this discussion, let’s not sugar coat the role of the Bureau of Labor Statistics – the agency responsible for the gargantuan task of measuring changes in prices of literally thousands of goods and services.  Inside the Washington beltway, it is not considered acceptable in polite company and polite conversation to tell the truth about such things as professional wankery on behalf of the rich and powerful.  But we are not in the Washington beltway.

Twelve Month Increase in the Overall Cost of Living: November 2011 to November 2012

The latest BLS report on the change in prices for commodities and services indicates that the overall cost of living between November 2011 and November 2012 rose 1.8%.*  The final report has not been released yet but it will not vary significantly from the most recent release.

If you are a senior on a relatively low, fixed income or a low wage worker, this will come as something of a surprise.  In fact, this news will probably make you angry because you are amongst the folks struggling to pay rapidly increasing inner-city bus fares, rapidly rising costs of child care, health insurance premiums – if you have health insurance at all – rapidly rising water, sewer, and trash pickup services, rapidly rising elementary and secondary tuition and fees, and rapidly rising higher education tuition for training that the power-elite says you need to become competitive in the labor market – to name a few inflationary aspects in the exchange of goods and services in today’s America.

The primary problem is this:  The BLS claims that many items with the largest price increases are not a big part of household budgets – even those household budgets in the lower income strata of society (I doubt if folks in the middle income strata would think the BLS understands their budgets very well either).  Professionals in the agency responsible for a fair measure of price increases can justify this statistically by simply considering overall averages for what surveys indicate is spent by households on a huge variety of goods and services.

Below is percentage price increase of a select set of items and the weight assigned to them by the BLS (the weights are the proportion or percentage of a theoretical household budget – all weights sum to 100):

 Imagine a single mother with one or more children or a senior citizen depending upon Social Security – think of any middle class family.  Does it seem likely that health insurance, school tuition and fees, child care/nursery school, and public utilities such water, sewer and trash collection services comprise only 3.872% of a household budget?  With rent and food, these items made up 49.436% of a household budget, on average, in the year between November 2011 and November 2012 – according to the BLS.

Overall inflation was low for the past year because of such items as energy (.3% increase, 10.184 weight), commodities less food and energy such as new vehicles (1.4% increase, 5.507 weight), household furnishing and supplies (-.1% increase, weight 3.292), food at home (1.8% increase, 14.175 weight) and rent (2.2% increase, weight 31.389).

In the real world, working people struggle with paying rent, accessing health care, paying for child care, school tuition, and food.  If only they would, after meeting all those needs plus others too numerous to mention in this short document, have half of their earning left over for entertainment, vacations, and other pieces of the American pie to which we all aspire.

Things Will be Getting Harder for the Masses

 Most certainly, readers of this bulletin noted the big increases in items related to city services.  As the Federal government cuts taxes and devolves an increasing number of services normally undertaken at the Federal level, local governments will be strapped for funds to provide essential services.  Regressive but increasing state and local user fees and sales taxes will consume ever larger portions of household budgets.

The relatively low increases in energy and food during the past year can be explained by the volatility in these commodities, which fluctuate due to speculation in the commodities markets, weather, and other factors.  It is unlikely that food prices will not spike in the near future.  Drought, an oligopolistic grain commodity industry,  rising demands in developing nations, and other issues will most certainly put upward pressure on food prices in the near future.

Due to a restructured production system in the United States – the shipping of jobs to cheaper labor markets and robotization –  fewer and fewer people have the income to buy new cars, new homes, and other large ticket items. This has created a negative feedback loop – fewer jobs, less income, less demand, and the cycle reiterates.  As worker income drops, government revenue drops, which is also due to the chutzpah of wacky, right wing, libertarian ideologues and their billionaire funders. Increasing costs of state and local government, education, and child care hit the lowest income groups the hardest but it’s not easy on the middle class either.

Artificially Low Inflation Benefits the Power-Elite

 It is not easy to adequately explain the CPI to most people who have little time in their busy lives to read about and think about something as complex as price economics in the largest economic system in the world.  This bulletin certainly doesn’t do justice to the issue.  But we must begin to work at communicating the basics of the BLS system and its unfairness to all but the very affluent.

Much more than suppression of Social Security benefits is at stake.  Measures of such phenomena as poverty and worker income growth are defined and measured in relation to the CPI.  Workers’ wages and salaries are impacted in significant ways by what the BLS publishes as the official CPI.  If the government – at the behest of the power-elite – can create a price change reality to the advantage of the power-elite, employers can much more easily justify stagnant wages/salaries and legislators have an easier time denying increases in the minimum wage.

In this series of posts, more will be written about the cooperation of the BLS with the power-elite in suppressing the CPI.  Evidence abounds that this one agency in charge of fairly and validly calculating prices and their impact on the cost of living is not acting in the peoples’ interest.  Look for several upcoming bulletins in the next few weeks, which will further explain flaws in BLS methodologies and the reason that agency is promoting these flawed practices.

†see: “Misguided Social Security Reform,” New York Times, The Opinion Page, January 13, 2013, page 10

*see report at:  http://www.bls.gov/news.release/pdf/cpi.pdf