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Friday, September 05, 2008

 

CPI-U and COLA


jim hamilton at econbrowser takes on the detractors of CPI-U, particularly shadowstats, citing the BLS defense of the metric.

Why do people continue to give credibility to an operation like Shadowstats? Now that's something that I'd like to hear explained.


the comments were lively, where i added:

to my mind, the pretext of what the BLS is attempting to do [in adopting the revisions housed in CPI-U] is to model reality as closely as possible.

but this frankly is a futile activity -- the pre-hedonic, pre-substitution CPI was well within the margin of error. greenlees and mcclelland are in effect arguing as much, minimizing the nature of the difference as minor or non-existent.

if one accepts their rationale, the question then becomes: if the error around either method of calculation is far greater than the difference between them in any given month, why have made the change at all?

i deeply suspect (but can not prove) that the aggregation of small differences over time are in fact intended to substantially minimize COLA in government subsidy programs. even a cursory reading of history shows that such government agencies as the BLS are across time and place reliably vulnerable to political pressure, regardless of whatever ennobled image of applied economic science we would prefer to be true.

the BLS could easily rebut by producing the original CPI series alongside the revised CPI series. that is doesn't opens the door for shadowstats. hopefully someone better-equipped, inside or outside the BLS, takes up the challenge.


it turns out that i don't have to prove what the BLS showed itself.

i don't think anyone seriously debates, do they, that the old computation resulted in a higher CPI? that's really what a proper reading of the CPI-U-RS demonstrates.

it seems to me that one can argue forcefully that there is a wide gap between shadowstats methodology and the widespread perception of what it is doing. and one can argue perhaps less convincingly that CPI-U is more "accurate", and that is was not intended to reduce COLA.

but what one cannot do is argue that CPI-U did not effectively result in the diminishment of COLA in government entitlement payments. it did, per dr. perry and data he cites from the BLS itself.

i admire those who believe that academic pursuit of truth rules the day even in government departments run under political administrations. but my reading of history suggest that, even if CPI-U is "better", it never would have been enacted had it not also reduced government welfare payouts. as far as that goes, regardless of its theoretical merits as an abstraction, that is the purpose of the implementation of CPI-U.

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