The Aeration Zone: A liberal breath of fresh air

Contributors (otherwise known as "The Aerheads"):

Walldon in New Jersey ---- Marketingace in Pennsylvania ---- Simoneyezd in Ontario
ChiTom in Illinois -- KISSweb in Illinois -- HoundDog in Kansas City -- The Binger in Ohio

About us:

e-mail us at:

Friday, February 18, 2011

Back Door Debt Reduction

From the DC Underground:

No one, but no one, truly believes the official "no inflation" statistics (resulting in no COLA for SS for at least 2 years).

In fact, a few years after the Boskin Commission slashed SS benefits by rigging CPI to understate inflation, Greg Mankiw, chairman of George W. Bush’s Council of Economic Advisers from 2001-2003, seeing no reason at the time to continue the charade, publicly admitted the truth everyone already knew: “The debate about the CPI was really a political debate about how, and by how much, to cut real entitlements.”

Since, by the time of Mankiw's admission, the Boskin Commission's (bi-partisan) dirty deed had already been safely accomplished, resulting in a CPI that critics estimate understates real inflation by at least 1% annually to as much as 7% annually, little did Mankiw know that, in 2011, Republicans (and their enablers) would have the audacity to try a repeat of the same scam attempt to RE-RIG the CPI that Americans already recognized as fraudulent.

But, to the extent that Mankiw did not foresee a repeat of the CPI-rigging scam, he clearly underestimated the charms to politicians of dishonest accounting manipulation of CPI....... what Barry Bosworth of the Brookings Institute eloquently labeled "the ‘immaculate conception‘ version of deficit reduction in which spending is cut without Congress taking the blame.”

Do Republicans (and their co-conspirators) have no shame?

The compounding of an artificially low Consumer Price Index have ALREADY reduced payments to social security recipients by about half (according to John Williams, author of the newsletter Shadow Government Statistics).

Yet they are now back for the rest of the benefits Americans have funded (building a $2.2 trillion surplus with which Republicans have funded wars and tax cuts to the rich) with a lifetime of sweaty payroll tax contributions.

Because Republicans are ADDICTED to the raiding of payroll taxes from the SS Trust Fund to fund the deficits created by wars, corporate welfare, and unsustainable tax cuts to the uber-rich, they do not want to EVER honor the $2.2 trillion in Treasury bonds representing the decades of loans from the SSTF to the Treasury. Republicans have even pushed to PAY CHINESE BONDS before those of Social Security.

Because they want to continue to have payroll taxes subsidize income tax cuts for the rich, Republicans reject any approach which would address the fact that billionaires pay a LOWER combined federal marginal tax rate than the middle class. Republicans reject, for just one example, eliminating the exemption of income over $106,800 from FICA taxes, which, by itself, would more than guarantee continued solvency, while (partially) rectifying our regressive tax system which favors billionaires with lower combined marginal tax rates than the middle class.

Instead, Republicans, and their enablers, are so intent to continue raiding payroll taxes that they propose cuts that are much, much greater than the 22% cut in 2037 (rising to 25% by 2084) that the Social Security Trustees say would achieve continued solvency IF NOTHING IS CHANGED BEFORE 2037.

Just the rigging of the CPI by itself, for example, (even if one accepts their ridiculously low estimates of the magnitude of suppression of CPI (0.3% per year) this will achieve, will compound to slash SS payments by 8% by 2037 and 24.4% by 2084. If one uses a more realistic estimate of 1.5% suppression per year (which is a low estimate of the suppressive effects achieved by the Boskin Commission) the compounded effect will result in a cut of 47% in Social Security by 2037. (But, moreover, will begin now, and will continue to compound forever).

The method the enemies of Social Security are now peddling, however, "Chained CPI", because it DE-COUPLES CPI from comparing apples to apples, has a much, much greater suppressive potential, and because it will depend on the somewhat arbitrary criteria which will need to be determined to implement the "substitution effect" "Chained CPI", if adopted, will be an infinitely powerful and flexible tool for artificially suppressing official CPI statistics.

This is how "Chained CPI" re-defines reality:

Suppose, over a given time period, prices rise 100%. And suppose that you, and others, have been purchasing rib eye for $5/lb, and rib-eye rises to $10/lb. Because of this inflation, you switch from rib-eye to hot dogs, which formerly were $2/lb, but rose to $4/lb. Now, you might be tempted to assume that the CPI has risen by100%, since that is what individual items rose. But "chained CPI", by allowing for a "substitution effect", says, in effect, that "Hot dogs are the new rib-eye", and that your meat expense actually went down from $5/lb rib-eye to $4/lb hot dogs, and that therefore there has "not been 100% inflation", but has been "20% deflation".

Will Republicans succeed in repeating a scam on working Americans? Is it possible without the active collaboration of Democrats?

In 1997, as the Boskin Commission's fraudulent rigging of CPI was on the verge of implementation, The Atlantic published an eerily prescient "How to Re-Write Economic History" which illustrates the profound attraction that cooking the books has for politicians:
“Given the questionable intellectual foundations of the Boskin Commission's findings, the commission's high standing in Washington requires explanation. Both Democrats and Republicans have been keen to see its recommendations adopted, because they provide a potentially uncontroversial way to achieve deficit reduction. Raising taxes is unpopular, and little discretionary government spending is left to be cut. Restating the CPI as a measure of cost-of-living inflation offers an easy way to lower Social Security payments through reduced COLAs and raise tax revenues through reduced exemptions. The hope is that the CPI can be presented as an apolitical and boring technical issue that voters won't notice.

“Revising the CPI would get the Republicans off the hook of deficit reduction, while simultaneously advancing the interests of business. This, however, would occur at the expense of working Americans and the elderly. Revising the CPI would get the Democrats off the same hook, but at the cost of another shameful desertion of the constituencies they claim to represent.”


Blogger KISSWeb said...

Good background and info. Really didn't know much about Boskin Commission.

1:55 AM  

Post a Comment

Links to this post:

Create a Link

<< Home