By John Ballard
This is a post I hesitate to write because it will make me look like I'm supporting the president and the Gang of Six and as an old-fashioned Liberal I don't relish being outcast from the Left. I already live in the Bible Belt among Christian Zionists, the same voters who put xenophobic, arch-Conservative, anti-choice candidates in office for the last forty or fifty years, so when I can't find myself in agreement with today's progressives I am forced to stand alone.
That said, I must confront some uncomfortable realities we all know and hate.
- Government is done by politicians, bureaucrats and technocrats, in that order.
- Today's econometrics are more precise than those of the past
- Both parties in our two-party system play the same games
- Like it or not, policies are determined by money, not principles.
I could write an essay about each of these topics, but in the end my rage and frustration, no matter how eloquent or angry, would not alter any of those four realities. They are in philosophical terms a priori.
Here are a few links that will shed more light than heat on the budget negotiations. That's a polite way of saying the reader may find them dull or sneaky, depending on a pre-formed political judgment, but I read them as good faith explanations with no hidden agenda. That's why I mentioned technocrats in the first bullet point. As politicians come and go, parties and coalitions shift policies and change places -- but the bureaucrats remain the same (except for political appointments) and the technocrats are the professionals who really make government function.
Something tells me the Gang of Six, like the Catfood Commission before them, have been listening to the technocrats in the same way that a patient with a serious diagnosis (think heart disease, macular degeneration or some kind of cancer) often becomes a more informed expert than their primary care physician...at least about their own disease.
In fact, the Gang of Six seems to be a Congressional manifestation of the deficit commission which has become everybody's whipping boy. When we call it the Catfood Commission we are applying one of the principles the technocrats at the Bureau of Labor Statistics calls substitution bias. They speak of how buying habits change when prices go up, which is exactly the point when the proverbial frugal old person substitutes catfood for canned seafood.
?The Gang of Six Simplified at The Committee for a Responsible Federal Budget.
New America Foundation board members include a few names I respect, including James Fallows, Fareed Zakaria and Atul Gawande. If that organization publishes something I'm not afraid to read what it says.
Since 2003, the Committee for a Responsible Federal Budget has been housed at the New America Foundation. New America is an independent, non-partisan, non-profit public policy institute that brings exceptionally promising new voices and new ideas to the fore of our nation's public discourse. Relying on a venture capital approach, the Foundation invests in outstanding individuals and policy ideas that transcend the conventional political spectrum. New America sponsors a wide range of research, published writing, conferences and events on the most important issues of our time.
?Anderson Sees `Good Things' in Gang of Six Debt Plan
Take a moment to watch this video which I cannot embed.
("disabled by request" really pisses me off, especially when all I have to do is send out a Twitter message which makes it universally available. But even then it has to be watched at You Tube. How stupid is that?)
July 21 (Bloomberg) -- Barry Anderson, a former deputy director of the Congressional Budget Office, talks about U.S. budget negotiations and the so-called Gang of Six senators' deficit-reduction proposal. Anderson speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
?Observation Post � New CPI Might Be Used to Set COLAs
Pay attention to the date on this one, last December.
I know nothing about The Military Officers Association of America but this Q&A is very even-handed. Somebody was paying attention last December and asking the right questions. Lots to learn here.
Recent debt-reduction studies, including the National Commission on Fiscal Responsibility and Reform in December, recommend adopting the �chain-weighted� CPI for Urban Consumers (C-CPI-U) to set COLAs for federal programs that now rely on the CPI-U or CPI-W. What is a chain-weighted CPI? It�s an index first introduced in 2002 based on a different methodology to address one of the criticisms of the other CPIs, which is substitution bias.
When prices change, people can change spending behavior. They can substitute, or move away from more expensive items to buy less expensive items. CPI-W and CPI-U don�t account for consumer substitution in any way.
In 1996, a Senate-appointed panel, the Boskin Commission, assessed the current CPI [in their report Toward a More Accurate Measure of the Cost of Living] and said one of the weaknesses of current indices is they essentially assume people buy the same stuff regardless of [how] prices [changed]. There�s a certain consensus that was a valid point, although you could find people who disagree.
So the idea is that, in measuring cost-of-living changes, if you don�t account for consumers changing their behavior, substituting cheaper goods for more expensive goods, then the index is biased?
Can you give an example of substitution bias? There are two kinds. One is within an item category. Let�s say I go to a store to buy cheese. I usually buy cheddar, but the store has doubled the price, so I buy Swiss instead. That is what�s call lower-level substitution bias.
In 1999, at the BLS, we started using a geometric means formula within [an] item category to account for that sort of bias. But there is also substitution across item categories. For example, when the price of beef goes up, I am more likely to buy chicken. [Or catfood. JB]
Why assume consumers� buying habits change that way? Economic theory certainly suggests that demand for a particular good is related to price. As price goes up, compared to other goods, we tend to demand less of it. That�s not always true, but, in general, if things become more expensive, relative to other things, you buy less.
Substitution is much easier in some things than in others. For medical care, there essentially is no substitute. For housing, there is very little [substitution]; we don�t go out frequently to find another apartment. For something like apparel or food, there is quite a lot of substitution.
So how does the chain-weighted CPI address substitution by consumers? What you would really like to do in an index is not make assumptions about how people behave but actually get expenditure data, note how it really does change, and base your CPI on actual expenditure as it occurs. That is the basis of the chain-weighted CPI.
With CPI-U and CPI-W, we measure price changes for a market basket from base period. We estimate total expenditure based on those weights.
The chain-weighted CPI incorporates not only the base weights but the updated weights, too. So we�re not assuming what people do based on reaction to price change; we are actually measuring what their new expenditures are. The weight arguably could be said to be more accurate because it is mostly free of substitution bias.
More at the link. This is just the juicy part.
That makes you real excited to see the rest, right?
1996 was several administrations ago. Just as every Congress has kicked the can down the road with a "Doc Fix" ever since the Medicare reimbursement formula proved unworkable, every Congress since then has been aware of the flawed metric for COLA, but as every schoolboy knows that third rail will kill you if you touch it.
?Measuring Up: The Case for the Chained CPI
Last but not least.
This is the sock puppet of the Deficit Commission.
It was written in May but anyone who has read the other three links will be able to follow along with better understanding.
Get ready to discern shades of difference among
Most arguments I am reading want to simplify this adjustment for partisan reasons. When I look at the details I cannot go along with them. The sentence that jumps off the page is this. Both parties really want this to change. They have seen the need for a long time but each party wants the other one to take the blame. Why do you think the discussion is behind closed doors and the details are being left for later?
Unlike the methodological changes in the calculation of CPI-U and CPI-W that are automatically reflected in the published measures used for indexing programs under current law, using the more accurate chained CPI for indexation instead of the CPI-U or CPI-W requires a statutory change in law.
When I moved from the private, for-profit sector to the so-called not-for-profit segment I got to see how budgets trump operational realities in a big way. When you're working to squeeze a nickel profit out of every dollar your "budget" is nothing more than a guideline. In the private sector if a disaster strikes or a competitor opens up across the street whatever the budget said better be in for a sudden adjustment to tighten up.
But in the not-for-profit sector -- and this includes government operations -- the budget is set in stone. In fact, if there is "extra money" in the budget, the norm is to find a way to spend it so next year's budget won't be reduced. The system is designed to move only in one direction. No one but no one is stupid enough to suggest not spending all that is in the budget.
From what I can tell (since zero-based budgeting is not politically feasible) this method of designing future budgets will be as much a fiscal improvement as the catalytic converter was for the internal combustion engine. Unless somebody convinces me otherwise, I'm sold.