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Stanford economist Michael J. Boskin has a suggestion for President Barack Obama to pitch his chained consumer price index proposal on Capitol Hill: Keep it simple.
“My advice is to do it as a technical correction as part of a broader overhaul,” said Boskin, a former chairman of the Council of Economic Advisers under President George Bush and a former adviser to Massachusetts Gov. Mitt Romney, the 2012 GOP presidential nominee.
Boskin has good reason to understand the dynamics at play, technical and political.
He was chairman of the Advisory Commission on the Study of the consumer price index, which first suggested moving to the chained CPI in a report to the Senate Finance Committee in December 1996. And Boskin has led the push for chained CPI since then.
He and other economists long have argued that the government’s inflation gauge should mirror the behavior of consumers, who may react to higher prices by switching to cheaper substitutes.
“The existing CPI does not take account of substitution,” Boskin said. “The chained CPI would adjust for what is an inadvertent over-indexing due to bias in the CPI.”
The Bureau of Labor Statistics adopted several of the recommendations of the Boskin Commission.
For example, BLS began tabulating a chained CPI for all urban consumers in 2002. But the new yardstick cannot be used to adjust Social Security benefits and tax brackets without legislation.
With the idea now on the table, Boskin is concerned that Obama may make concessions to mollify critics. One action already discussed would allow for higher increases in benefits for older Social Security recipients to partly make up for the smaller cost-of-living adjustment.
“It’s unfortunate he wants to water it down,” Boskin said. But he also praised the president for not making changes in the chained CPI formula itself and for trying to build consensus for an idea that faces opposition in both parties.