Why You Should Care About the CPI-U and the chained-CPI

How do you effectively kill a bunch of people without admitting that’s what you’re doing? You adjust the Consumer Price Index for All Urban Consumers to a Chained Consumer Price Index! Obviously.

If your eyes glazed over just now, you’re not alone. But stick with me here because this is actually incredibly important, and not as confusing as it first sounds. Trickle-downers love to use off-putting acronyms to describe useful everyday economic realities because they’re counting on the fact that if they make it seem obscure and complex, you’ll assume you won’t understand it and just keep moving. Don’t buy it.

The Consumer Price Index for All Urban Consumers (CPI-U) is the tool our government currently uses to calculate the poverty level adjusted for inflation, meaning it’s what the government uses to decide who’s poor enough to receive government supported essential services and who’s not. The chained Consumer Price Index (chained- CPI) is a slightly different way of calculating these things, one that assumes (you know what they say about assuming!) consumers will substitute across categories to counteract rising prices. The Trump administration has proposed doing away with the CPI-U and moving to the chained-CPI to calculate inflation and decide the poverty line.

Benefits on the Line

What Does This Mean and Why Does It Matter?

Substituting across categories means that if you have $1500 to spend on a vacation and the cost of vacations goes up, you’ll spend that $1500 on something else that supports your leisure, like a flat screen TV or a bouncy castle. Aside from the obvious point that a bouncy castle is the way to go here, let’s also remember that 40% of Americans can’t afford a surprise $400 expense, let alone $1500 for leisure activities.

The problem is we’re not talking about bouncy castles here. Substitutions only apply to non-essential spending. There are expenses in life that have no substitution — like rent, or food, or childcare. For many Americans, the choice is not between renting or buying—it’s between renting and becoming homeless. When the price of rent goes up, I can’t substitute something else for that cost. The effect of this substitution assumption is that the inflation rate and cost of living increase appear lower than they actually are, because the government is calculating them based on the people buying $1500 bouncy castles, not the folks who are unable to make rent. This miscalculation results in a lower poverty line, so the government thinks there are fewer poor people than there actually are. Or to put it plainly, millions of Americans will no longer receive essential services they need to survive because they’re not considered “poor enough”.

According to a report from the Center on Budget and Policy Priorities, calculating with chained-CPI over 10 years would lower the poverty line by 2% and cause millions of low-income people, seniors, and people with disabilities to either lose their benefits completely or receive less assistance. Hundreds of thousands of seniors would either lose completely or see reduced assistance from Medicare Part D. More than 300,000 children would lose Medicaid and Children’s Health Insurance Program coverage, as would some pregnant women.

Under chained-CPI, many seniors would lose their premium tax credits and be forced to pay higher premiums through Medicare, while many adults would lose their Medicaid altogether. Even people who buy their medical coverage on the marketplace would see their premium tax credits shrink. These impacts would continue to grow over time, decreasing the accuracy of the poverty level, the inflation rate and the cost of living increase and forcing millions of Americans deeper into poverty and hardship — while at the same time artificially giving the appearance that the government is succeeding in fighting poverty, because they’ve changed what’s being measured and in doing so made millions of people experiencing poverty totally invisible.

In case all of this wasn’t horrifying enough, using chained-CPI has historically seen support on the left as well, from Nancy Pelosi and even President Obama. So beware of anyone, friend or foe, pushing for chained-CPI. In fact, even the current measurement system is deeply inaccurate — the CPI-U doesn’t take into account that wages and incomes are barely keeping up with inflation and not even close to keeping up with cost of living increases.

While I understand that no administration wants to be blamed for making poverty worse — which is likely what would happen to an administration that instituted an accurate poverty measure — the Trump administration is (not surprisingly) going to the other extreme. They are making themselves look good while exponentially worsening the problem by further impoverishing and silencing millions of Americans. Rather than help poor Americans climb out of poverty, the Trump administration is trying to pretend they don’t exist.

How to Cut Essential Public Services Without Anyone Noticing — Use Wonky Acronyms was originally published in Civic Skunk Works on Medium, where people are continuing the conversation by highlighting and responding to this story.

The Washington Post recently published a mildly dizzying article on Trump’s approval ratings, based on a new poll they conducted with ABC News. Okay, I lied—it wasn’t mildly dizzying. It was fully ridiculous. I can only assume that the writers were feeling especially empathetic that day when they came out of the gate citing Trump’s approval ratings to be “at the highest point in his Presidency”. While that’s technically true, at 44% I’m not exactly sure that’s anything to tout. If 44% is your highest score ever, you’re flunking out, dude.

It turns out that number is almost exactly the same as those who say it is “extremely important” or “very important” that Trump not win a second term — 43%. My personal favorite was when they asked respondents “all else being equal, if the election were between Trump and a Democratic candidate who you regarded as Socialist, who would you support?”. While Trump eked out a win in that highly theoretical and realistically impossible question (ALL else being equal?!), I just love how well the unnamed and perceptively Socialist candidate does.

Actually, the economy is not strong

Alright, so it’s a bad poll—and while that’s fun to point out, it’s not really the point. The point is that the economy is not strong. Yes, the stock market is doing well, but that only helps you if you own stocks, which a lot of
Americans don’t. The volatile performance of the stock market is a horrible way to measure the health of the actual economy, and a particularly horrible way to measure the well-being of middle- and working-class Americans, who own only 8% of stocks.

The real economy — the economy of jobs, wages, goods, services, and cost of living — is struggling. One third of all American workers earn less than $12 an hour, and 42% earn less than $15. Wages have barely kept up with inflation, let alone the cost of living, growing only 3% over the past decade. Congress has recently set the record for the longest stretch ever to not raise the minimum wage. Meanwhile healthcare costs, childcare costs, education costs and credit card debt are all rising. That doesn’t sound like a booming economy, and it sure as hell doesn’t feel like one to the millions of Americans living in it.

So, if you want to give Trump credit for the economy, go for it. Seriously, knock yourselves out. He’s succeeded in ensuring that those at the top keep getting obscenely rich from their rising stock prices, massive tax cuts, government subsidies, stock buybacks — the list literally goes on and on. As president, Trump has thrown his all of his weight into trickle-down policies that benefit the rich and powerful, hurt workers, and damage the overall American economy. Damn right he’s unpresidential. For an otherwise reputable publication to feed the lie that our economy is strong, and to use that lie to position Donald Trump positively, is irresponsible.

A Civic Take: Aided by A Struggling Economy, Trump’s Approval Ratings Continue to Suck was originally published in Civic Skunk Works on Medium, where people are continuing the conversation by highlighting and responding to this story.

Usually, when we talk about utopia we’re being either facetious or sarcastic. Either way, the underlying sentiment is that it’s impossible — too good to be true. But when Dutch historian and author Rutger Bregman talks about utopia, he is being completely serious. You’ve probably heard of Rutger Bregman as the “folk hero of Davos”, the guy who spoke truth to power at the recent gathering of the world’s political, business, and philanthropic elite. We had the pleasure of talking with him recently on our podcast, Pitchfork Economics, about all his ‘crazy’ ideas.

Bregman’s recent book Utopia for Realists: And How We Can Get There makes a thoughtful and compelling argument for a 15 hour work-week, universal basic income (UBI), eradicating poverty and homelessness, and other societal changes that probably seem insane to us here in the United States.

But are they?

In all honesty, we’ve been UBI-skeptical here at Civic Ventures, but not for fear it would crash the economy or any of the other bullshit neoliberal reasons you might see on Twitter. Our primary concern has been that a universal basic income would end up being exploited by our corporate overlords as a subsidy, allowing them to further gouge workers’ wages, benefits, and labor protections. If a UBI were to distract from the more pressing issues of creating true economic prosperity—like raising wages for everyone, ensuring fair labor standards, and beginning to shift the trillions of dollars in stolen wealth back to American workers—it would be doing more harm than good. We’ve been concerned that it would end up essentially being an expansion on the Earned Income Tax Credit (EITC), which, while it helps people get by, does nothing to address the structural economic problems that cause poverty and income inequality.

But what if UBI wasn’t a poverty-level subsidy that allowed corporations to continue to deny workers fair wages and labor standards? What if UBI actually provided enough money to cover food, shelter, clothing, and at least some education, totally unconditionally? I know, I know, it sounds crazy. But our current systems and ideas are not working, so we need to be open to big ideas and seemingly crazy alternatives, because the truth is that what’s insane is what we have now.

But, won’t it be (too) expensive?

I mean, how can the government possibly afford to write every single person a check like that every month?! Well, I’m here to remind you that we can afford what we prioritize. If ensuring that 40 million Americans don’t live in poverty is more important to us than, say, giving tax breaks to billionaires, then we figure out how to pay for it (hint: don’t give billionaires the tax break and then use the money to pay people). And, as Bregman points out, it’s actually much cheaper to solve problems like poverty, crime and homelessness directly than to continually fund support services and sustain the economic losses to society that these problems cause. So, no, it’s not too expensive.

There is an underlying cultural shift that this structural overhaul requires, which is truly redefining who the value creators are in society, and paying them accordingly. Society literally breaks down if garbage collectors stop collecting garbage or if teachers stop coming to school to teach our children. But it turns out, if bankers don’t show up to work…well, nothing really happens. It’s so easy for us to get stuck in a vacuum of the way things are and to lose our imagination (and maybe our grip on reality). When a society that allows three families to own more wealth than half of the entire country starts to seem normal and even worth defending, maybe it’s time to open our minds to some “insane” possibilities.

Listen to our full conversation with Rutger Bregman on Pitchfork Economics here:

A roadmap to utopia (with Rutger Bregman)

Our New Dutch Crush: Rutger Bregman’s Roadmap to Utopia was originally published in Civic Skunk Works on Medium, where people are continuing the conversation by highlighting and responding to this story.