The Dismal Science

One of Bush's less notorious proposals for "reforming" Social Security is to index it to prices rather than wages. This requires explanation: to "index" a regular payment to some other measure is to make it rise along with that measure. If Social Security had not been indexed to something, it would still be paying out $10 a month or thereabout. It is now, officially anyway, indexed to the index of incomes. That is, supposedly it goes up as the average income goes up. Bush wants to index it to the Consumer Price Index. He says this will slow the rise in benefits because prices are rising more slowly than wages.

Which raises a whole bunch of questions.
1. Why does he want to slow the rise in benefits? My esteemed spouse's Social Security check went up by 1.75% last year. (see http://www.ssa.gov/OACT/COLA) In the meantime, the average CEO's salary and compensation package went up by 12% in the same year. (http://www.aflcio.org/corporateamerica/paywatch/pay/)

2. Who says wages are rising faster than prices? Whose wages? Which prices? Anybody who can say that with a straight face either isn't paying attention or is engaging in deliberate flimflammery. Where do these statistics come from?

Officially they come from the US Department of Labor Bureau of Labor Statistics' Consumer Price Index (http://www.bls.gov/cpi/home.htm). The CPI has been under attack from the conservatives for years because they claim (get this!) it overstates price inflation, by ignoring the tendency of the savvy consumer to replace high-cost items with cheaper stuff after a certain point. The conservatives, of course, are ignoring the fact that such "commodity substitution" works only up to a certain point. People who have been eating steak can switch to hamburger, people who have been eating hamburger can switch to tuna, and people who have been eating tuna can switch to eggs and peanut butter, but what can people switch to from eggs and peanut butter? And such enforced commodity substitution, whatever you call it and whether or not you choose to call it inflation in the cost of living, is definitely a decrease in the standard of living.

In fact, the way the cost of living is conventionally reported in business periodicals and broadcasts understates increases in the cost of living, by deliberately and explicitly factoring out such items as housing, fuel, and health care because they are so "volatile" that they "distort" the general picture. If I could factor those volatile items out of my price index, life would be a lot easier. In fact, the price of gasoline has risen almost 30% in the last year. I'm not citing any sources for that, because you can check it for yourself every time you take your car out. The purchase price of the average house increases betw1een 7 and 12% a year (www.gsb.stanford.edu/news/research/econ_housinginflation.shtml). The cost of health care has been increasing at the rate of about 7% a year for the last ten years (http://www.nchc. org/facts/cost.shtml) You get the picture.

There are a couple of things you can do to keep from being taken in by this statistical dreck:

following is a batch of interesting links that will help you keep track of what's really happening in the economy:
http://www.washingtonpost.com/wp-srv/business/longterm/cpi/cpi.htm

http://money.cnn.com/2003/11/14/markets/inflation/

http://www.gold-eagle.com/editorials_04/paulos090904.html

http://www.findarticles.com/p/articles/mi_m1094/is_n3_v32/ai_19735856

http://www.rense.com/general4/lv.htm

http://www1.jsc.nasa.gov/bu2/inflate.htm

http://www.bls.gov/dolfaq/bls_ques2.htm

http://www.pww.org/past-weeks-2000/Cost%20of%20living.htm

http://www.commondreams.org/views04/0317-04.htm

http://www.themilitant.com/1996/6045/6045_1.html

Some of them, you'll notice, are impeccably middle-of-the-road, like CNN and the Washington Post. Some of them are far to the left of anything the Democratic party dares to say these days. Doesn't matter--they all tell us pretty much the same thing: the official reports of what's happening in the economy cannot be trusted. If you don't want to be flimflammed, follow the unofficial reports.

And second, try keeping your own consumer price index. It's probably good for your budgeting anyway. Track what you pay for your week's grocery shopping, your gas fillup, and your health insurance copays. Make a note when when your heating bill goes up. And so on. It's better than suddenly realizing you're running out of money earlier in the month than you were last year. If you don't pay attention to what is happening in your own life, nobody else will.

Have a nice week.