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The Chained Consumer Price Index: Standard of Living Spirals Downward As Cost of Living Decreases

I am taking a short break  from my story line to report of several other issues of import. the first being the new accounting method which the government has devised to calculate increases in the cost of living. Based on this new accounting devise alone, The government can now report that the rate of increase in the  cost of living is on the decline.

The new method is call Chained Consumer Price Index.  It is in the newly proposed budget for Maine but I believe that the source is the federal government:

Title 36: TAXATION Part 8: INCOME TAXES Chapter 841: INFLATION ADJUSTMENTS §5402. Definitions


This Part suspends the inflation adjustment for income tax brackets for tax year beginning in 2014 and 2015 and provides that the inflation adjustment calculation for tax years beginning after 2015 must be based on the Chained Consumer Price Index instead of the Consumer Price Index


Here is my layman's analysis based on this article:
Measuring Up:The Case for the Chained CPI
Moment of Truth Project, by Adam Rosenberg
Marc Goldwein
Updated December 12, 2012

One of the first thing ones learns is that without changing anything- such as the amount of paper money printed up by the federal reserve- that by using a Chained Consumer Price index instead of the standard consumer price index, the rate of escalation in  the cost of living slows and falls magically downward. Based on my quick perusal of the article linked above, this is done by calculating in changes in consumer spending habits- so if the consumer used to buy a certain item but found that they could no longer afford to do so because the purchasing power of their dollars would no longer accommodate such an item- and if the consumer then substitutes a lower cost item for the item they formerly purchased, then by using the Chained Consumer Price index, the cost of living did not go up as much as it did if the standard consumer price index is used . It is called a Chained Consumer Price Index because the index is calculated by chaining months together so that if in one month the consumer purchased the more expensive item but in the next month the consumer found a lesser expensive item- the cost of living increase will be calculated as less by using the Chained Consumer Price Index. This allows the government to report that the cost on the purchasing power of every one's money isn't as much as it used to be when the state takes worthless federal money and distributes it into the economy via benefits to targeted sector elite.

Using this accounting gimmick- without changing anything else, the government can then report that the rate of increase in the cost of living has decreased- thanks to all the ways that the consumer has found to make his dollar stretch a little further and the government doesn't have to change its own spending habits one iota to realize this improvement in the cost of living!

But even worse, this is a mechanism for a constant downward spiral in the standard of living, as the consumer finds way to adapt to a shrinking dollar, the government uses the adaptations of the consumer as a measure of the cost of living,  used to calculate the inflation adjustment on taxation, justifying higher taxes and then the cycle repeats itself. The Chained Consumer Index is not really a measure of changes in the cost of living but a measure of changes in the standard of living.

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