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| Chained CPI hits hard |
Chained CPI assumes that people would buy cheaper goods when they have less money to spend. So if someone can't afford steak, they'll buy chicken instead. It assumes that all things are equal in quality, but not equal in price. Why should people pay for a new home when they could, after all, live in a trailer? In both cases, the negotiators assume, people have a roof over their heads. Who cares about the quality?
Using chain CPI, instead of continuing to use standard CPI, allows the government to help balance it's books on the backs of those with the most to lose. Retirees, veterans, those receiving disability or social security, and so forth all rely on the CPI to keep themselves ahead of inflation. These people will lose ground every year under chain CPI.
But what's really happening is that the negotiators in Washington want to cut entitlements without appearing to cut entitlements. By doing that they're also going to impact the ability of people to buy all sorts of goods. If chained CPI is enacted as a part of the fiscal cliff deal (and something will be enacted, there's too much political pressure for it not to happen) we'll see a large decline in American's disposable income.
