CPI

The re-election of President Obama is resulting in some anticipated benefits. It was predicted by some experts that in a second term he could propose changes to entitlements since he would not be inhibited by another election. In the latest offer he suggested some changes in social security that would result in lower benefits to recipients both current and future. Since 1975 social security benefits have been indexed to the consumer price index but Obama has proposed a change in the method of calculating that will result in smaller increases. The current method is to just adjust each year based on the current inflation rate but the new method will be less. The new way called chained CPI reflects the change in buying habits. If the price of beef increases, people will eat more chicken and pork and thus the cost of their food, will not increase as rapidly. This small change will result in a savings of $125 billion over the next ten years, since the net effect is smaller increases in benefits. Just as only Nixon, a conservative, could open the door to China, only a liberal could reduce social security. This is a small first step that will lead to other changes in social security.