WE Americans are so used to being ripped off by our...

Salmagundi

January 10, 1994

WE Americans are so used to being ripped off by our government that it comes as a surprise to learn that some of us unwittingly have been ripping off the government ourselves.

Here's the scoop: It seems as though Uncle Sam hasn't been too accurate in computing the consumer price index, the fabled CPI that is used to determine certain financial interest rates, the annual increase in Social Security payments, wages in many labor contracts, office building leases and even some alimony payments.

Economists in the Bureau of Labor Statistics who have studied the matter in detail now believe that the CPI magnifies the nation's inflation rate by as much as 0.6 percent a year. That difference doesn't sound like much, but it will cost the federal treasury $1.8 billion in 1994 to pay for overly generous Social Security increases.

As in any economic puzzle, the details are convoluted. Suffice it to note that the current CPI fails to reflect changes in consumer behavior when prices rise. Instead of shopping at Hecht's, we might suddenly decide that Caldor's is more in our price range. Or we might simply buy fewer items of clothing. The CPI just assumes we will keep buying the same amount of goods from the same merchandiser. Life doesn't work that way.

It will be years -- maybe even decades -- before the CPI is fixed. Too many Americans don't want to accept the fact that the CPI is an inflated number which should be adjusted downward -- even if it means fewer bucks in their own pockets.

Economists in Washington would modify the index more rapidly, but politicians? Never is soon enough for them, even if this helps that deficit roll up and up and up.

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