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View Diary: Andrea Mitchell flunks American democracy in debt debate (177 comments)

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  •  This is the same Greenspan that cut SS in the 90's (22+ / 0-)

    you know, the CPI with substitution (hamburger for steak, etc.).

    We wouldn't want the people already affected (1/3 cut in SS) to be calling her husband, would we?

    Happy little moron, Lucky little man.
    I wish I was a moron, MY GOD, Perhaps I am!
    -Spike Milligan

    by polecat on Fri Jul 29, 2011 at 10:47:22 AM PDT

    •  that's not how substitution works (1+ / 0-)
      Recommended by:

      Hamburger and steak both come from cattle, and so their prices would move in tandem.  it's not automatically seeking out the cheapest food, but is instead trying to model actual consumer behavior where prices of comparable goods diverge, like chicken for fish.

      "This world demands the qualities of youth: not a time of life but a state of mind[.]" -- Robert F. Kennedy

      by Loge on Fri Jul 29, 2011 at 11:40:13 AM PDT

      [ Parent ]

      •  It IS how it works. People who USED to buy steak (2+ / 0-)
        Recommended by:
        WheninRome, Brooke In Seattle

        now buy hamburger (or catfood), a lower-priced commodity.

        And the other thing that happened with the change in the CPI was the use of a geometric mean instead of a simple weighted mean.  The geometric mean is heavily biased towards smaller numbers, so that the CPI is understated.

        In effect, we've been exporting inflation since T-Bills and everything else were indexed to that new CPI.  Understating inflation has the joyous side-effect of making GDP seem larger, too.

        Happy little moron, Lucky little man.
        I wish I was a moron, MY GOD, Perhaps I am!
        -Spike Milligan

        by polecat on Fri Jul 29, 2011 at 12:08:08 PM PDT

        [ Parent ]

      •  My understanding is that is how it works. (1+ / 0-)
        Recommended by:
        Brooke In Seattle

        You're describing a system whereby the basket is changed retrospectively -- the inflation rate would be calculated after changing the basket of goods in both the the last year and present year.

        But if the substitution allows altering the basket distribution between years, despite the fact that both steak and hamburger went up, you'll put in a discount by the switch.

        Then it is "automatically searching out the cheapest good", given that when consumers deal with inflation, they search out the cheapest goods.

        So, when inflation outpaces wages, inflation will be undercounted -- and when wages out pace inflation, inflation will be overcounted.

        And both will result in policy decisions that suppress wages.

        But the justification would be "actual consumer behavior" -- as if that was some random variable disconnected from inflation. Circular arguments -- they're fair in economics, I guess.

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