A doubling in the value of aircraft exports fueled the big Improvement the level of foreign products entering the u.s. Slipped slightly partly because of GM strike in Canada Limited imports from Auto plants located there while Imports overall, we're down there was a big 30% jump in imports from Japan especially cars and car parts us trade balance with Japan had been falling for most of the past year, but the weaker yen is making Japanese Imports cheaper. So the Improvement may now stall the US trade Gap with China set a record in October of nearly five billion dollars slightly less than the deficit with Japan. I'm John and Stephen Washington a Republican Congressman today acknowledge that house Speaker Newt Gingrich gave false information to the house Ethics Committee, but he said it was due to an error by gingrich's former attorney representative. John Linder of Georgia says, there's no argument the speaker signed an erroneous statement. He said the question the committee has to decide is whether the deception wasIntentional stock prices are higher on Wall Street at this hour the Dow Jones Industrial Average is up more than 67 points and 6414 on volume of 281 million shares. You're listening to NPR news. Good afternoon. I'm Karen Bardot with news from Minnesota Public Radio Minneapolis. Mayor Sharon sales belt and has scheduled a news conference. Next our sales belt and says, she's on the short list of candidates President Clinton is considering as a successor to outgoing housing. Secretary Henry Cisneros Sales Belton was in Washington attending a national mayor's conference this week today could be the day the US justice department filed suit against University of Minnesota. The federal government had given the university until today to reach a settlement with them over the University's embattled surgery Department. Negotiations have been ongoing for a year a small minneapolis-based Environmental Group says it will sue the u.s. Forest service today to block the logging of 30.500 old pine trees in the Superior National Forest Earth protector says it wants a federal court in Minneapolis to issue a temporary restraining order against a saw mill owner who has purchased the trees members of the Environmental Group Earth First have delayed The Cutting by camping on a Logging Road to block access to the trees Earth protector president. Leslie. Davis says, he suing to protect the protesters as well as the trees. We need to get them off the road as quick as possible and a restraining order by the court if we can get that will do it so they won't be able to cut the trees and the people that have been on the road in Sub-Zero weather will be able to come home Davis contains an environmental impact statement should have been done before the trees were auctioned the state forecast decreasing clouds in the west variable cloudiness in the East with a few flurries highs from to Below in the Northwest to around 10 above in the extreme East and for the Twin Cities occasional cloudiness with a few flurries and a high near 10 around the region.Rochester blowing snow and to below zero at Sonny and six in Duluth and st. Cloud is cloudy and to and in the Twin Cities the windchill is minus 26. It's mostly sunny and one degree. That's news. I'm Karen Barda. Hi Karen, six minutes now past eleven o'clock. Welcome back to midday on Minnesota Public Radio. I'm Gary eichten programming on Minnesota Public Radio is supported by the handling University graduate liberal studies program offering the opportunity to consider complex questions with exceptional colleagues.Earlier this month a group of the nation's top Economist said that Social Security recipients been getting too much money from the government and the taxpayers are beginning to much of an annual tax break now actually The Economist didn't really say that what they did say though, is that the government's Consumer Price Index used to calculate government benefits and government tax brackets has been overstating the inflation rate for several years the panel which was appointed by the US Senate finance committee says the CPI should be scaled back by 1.1 percentage points a year. The effect over time would be dramatic Social Security benefits would be much lower over time than they otherwise would be a tax rates and effect would be much higher than they otherwise would be and the federal deficit to the Delight of politicians would be much lower than it otherwise would be well the recommendation as you might expect is touched off a lively debate in this country and they were going to take a closer look at the issue joining us here in the studio as Minnesota Public Radio senior business andSenator Chris Farrell we'll also be talking this hour with one of the members of The Advisory commission that came up with the recommendation will be talking with a former president of the AARP find out how this recommendation would affect seniors and we'll be talking with Minnesota Congressman Martens able to find out whether Congress ultimately will go along with the recommendation to cut the CPI. We'd also like to hear your thoughts on this issue. So if you've got some questions or comments on whether the government should rejigger its cost of living index give us a call. Our Twin City area number is 2276 thousand 2276 thousand outside the Twin Cities one eight hundred two, four two two eight two eight Chris Farrell. Thanks for coming by today. Well, thanks for having me the star of the show here before we get into the CPI business quick comment. If you could apparently President Clinton has decided to name Janet Yellen as the to the console economic advisers. Do we know anything about her where she's currently a governor of the federal?At the Federal Reserve. She's a well-respected mainstream Economist. She's done a lot of very good work and wages and unemployment. Her husband is George akerlof. He's an economist at the University of California Berkeley and they recently co-authored a paper on the rise in unwed pregnancies over the past 20 years. So she's a very good Economist. He's also in the tradition of cea chairman who they have very strong teaching and education background and they take the teaching and education and policy role of Economics very seriously, and she's in that tradition just like the currency a chairman George stiglitz so it would be a very good appointment. Okay? Well, I'm sure we'll hear more about that. Probably tomorrow CPI the Consumer Price Index. How is it compiled? Give us some basic information little background it Consumer Price Index. It's a measure over time of its average changes in prices paid by consumers for goods and services and what the CPI lets us do is the price for this.Basket of goods and services. You can compare it with what that price was in December to what it was a year ago what it was two years ago and the CP each month. It's really pretty incredible the Bureau of Labor Statistics. It gas it surveys prices at stores in auto dealerships and doctor offices and it gets prices on 77,000 goods and services from 22,000 outlets and 44 Geographic areas. And then there's also additional survey of 5,000 renters and a thousand homeowners and then these prices are plugged into a formula and within that formula is weighted depending on how much the item takes up of a consumers budgets an average consumer budget. And the last time we took that snapshot of the consumer budget was 1982. So like Autos is 4% of the consumer budget and so it's a very elegant formula. It's simple its elegant. It gives us a good it's a very good measure of price changes over time. The problem is we have a very dynamicHammock economy computers VCRs improvements in the in the automobile new surgery. And so these these problems in our in our Dynamic economy mean that over time the very Simplicity of this Consumer Price Index, it becomes misleading and they're really sort of three primary sources of where we get the sort of misinformation and one let's call it the chicken affect price of beef goes up. You stop buying beef you buy chicken because it's cheaper so they doesn't really capture that that affect the other one is the Walmart effect, which Walmart's the great discount store and more and more people go probably go shopping at discount stores. And in fact in someone else is going to come along and they're going to undercut Walmart and more people shop at that discount story. It doesn't capture that kind of effect and the most important effect that it that it really doesn't measure very well is what we call Quality improvements the price of an automobile between was it like 1983 in 1995 when?By 73% if you just said price the price now the Bureau of Labor Statistics, they make adjustments because you have better brakes and there are all kinds of improvements to your car. So they said was only gone up 39% Well, the boss can commission is were calling that commission that looked into its is no, you know, there actually are even improvements that are being captured by the Bureau of Labor Statistics which suggests that the price increases less. And once you get into area surgery in medical technology many quality improvements part of it is you're getting more bang for your buck. Although it may show up as a price increase. It may actually be a price decrease if you're getting more bang for your buck. So these are the issues that they dealt with those three factors you add them up together. That's where you get the one point one percentage point overstatement in the CPI. Give us briefly a quick sense of how this would play out if tomorrow government said, yep, we're going to we're going to do this differently. We will adjust by 1.1 percentage points. What does what does that?Equally mean to the average person well to the average person to probably makes a fair amount of sense and I think in Washington which is not where the average person hangs out, it would be a revolutionary act and so it would happen it would have to happen over a period of time because as you mentioned is going to have an impact for people who are retirement benefits are tied. The Consumer Price Index is an incredibly important index it runs through welfare system. It runs through the retirement system. It runs through some 20% of the unionized workforce. They their wages are tied to what's happening to the Consumer Price Index taxes. Remember remember bracket creep? Okay Congress in 1981. I believe it was instituted some laws to protect the family's from bracket creep. Well, if you make this change a family of four who's in the 28 percent tax bracket, they're going to pay eighty six dollars more on their taxes. So it's going to hit taxpayers is going to hit retirees. It has implications throughout the system. So from a technical basis,It's a fairly convincing argument when you read the report, it's a fairly convincing argument and then there's Parts as in any report you can dispute but the trend is correct. The CPI Over States inflation the politics of it are extremely difficult. Well joining us now to talk a little bit about how the commission arrived at its figures Professor Dale Jorgensen. He was a member of The five-member Advisory commission and he is the chairman of the economics department at Harvard University joins us now by phone. Good afternoon Professor. Good afternoon pleasure to be with you glad you could join us as you well know the critics are suggesting that really this is much more of a political recommendation than economic recommendation economic conclusion. Is that a fair statement No, I think that's pretty far off base. I think that the purpose of the commission's work was to arrive at an accurate measure of the cost of living and as you've just heard that's something that we've tried to do making use ofThe best information that's available. So are our objective has been to Simply provide an accurate measure not to enter into the political issues that you just described one of the columnists here in the Twin City area suggested that if this that there's there should be more evidence in your report about the under estimating of inflation and that the mere fact that there isn't more examples of how we underestimate inflation indicates that this is that in a way these numbers are cooked. Well, we tried to to be very very conservative in our estimates of quality change, which is what the columnist you're referring to was was trying to draw attention to and we estimated that each of twenty seven groups 27 different commodity groups had an individual measure of quality change that we been based on the best available evidence.We did find that there was evidence in one case of quality deterioration rather than quality improvement. This took place in women's apparel during the 1970s. But since that time there has been quality improvement intuitively. It's not hard to understand why quality improvement is the rule rather than the exception and that is that as people enjoy an increased standard of living. They generally tend to upgrade the quality of their housing of the consumer durables like cars that they purchase and they upgrade to better kinds of Commodities. They purchase VCRs, for example, instead of relying just on a television set. So altogether, I think it's not at all surprising that we come up with the finding that by and large quality is improved. But as I say our estimates are quite conservative, we feel that if anything there might be more likely to be on the other side that we've underestimated.We change one of the things that was a little puzzling and reading the report as you get a sense that these quality change is a quality improvement has been a fairly steady fact of life since 1970, but in recent years, there's been a lot of commentary. There's a lot of trying to tease out in the numbers has there been an acceleration in the quality improvements because of what's been happening with the digital economy the semiconductor the computer the information Technologies in SS spreads throughout our economy, and there was one sentence where you sort of looked at I believe was 1980 to 1996 and suggested there may be a small incremental increase in quality improvement, but it was a little puzzling that you didn't deal with this this issue a little more. Well, we did try to deal with the changes in the rate of quality improvement. For example, one of the Commodities affected by the information revolution is the Motorcar we know that there are more and more computer chips that are appearing in the average automobile. We found that there was very little quality change.In automobiles from 1970 to 1980 3 but beginning in 1983 and running through to the present, we estimate quality change to be around six tenths of a percent per year for new vehicles. So that's an indication of the kind of acceleration that you're talking about. And that is something that characterizes everything that's affected by the digital Revolution. So we did try to deal with that issue. Obviously. This is something that could benefit from more research take another example, though. If you look at prescription drugs, we find that the quality change was much more dramatic between 1970 and 1985 than it has been in the last year or two where the quality improvements have been slowing down a little bit. So this is something that we did try to address help me Professor understand a little better this issue of quality because I think this might be kind of confusing to people certainly is confusing to me if I need to buy a car to get from A to B and the caught the car I buyMight be a better car but it's going to cost me more money. So my doesn't that does that mean the cost of living has gone up for me unless that car lasts a lot longer. Well, we have to distinguish you very carefully between your increased expenditure in the increased standard of living here. You may be spending more in a case like that because of the fact that you prefer to have a better car when that's more reliable as you suggested a moment ago more durable, but after all you could get by with a lower Quality Car, if you just think back far enough you can think of the you go and you know, the European type car which used to be more common in the United States after the energy crisis than it is today Americans. However generally tend to upgrade the quality of their cars when they do purchase a new automobile and that upgrading and quality means that their increasedIs reflect a higher standard of living because the cars are better there warmer. They're more reliable. They're somewhat larger. They drive are in the snow and that sort of thing and all of that is something that contributes to the standard of living not to to some kind of kind of rise in the cost of living. So that's the kind of Distinction that we made but I agree with you that's an issue that is confusing to a lot of people like their to measure and this confusion or different reactions. There's a political reaction. There's this issue of the changes that are going to happen to Social Security payments, but there's also I don't know a couple more and intellectual reaction, for example for the past 15 years. We've been talking about Rising income inequality in the United States the middle income families being pressed average workers not getting a wage increase and what Professor Jorgensen the scenes with this thing is a lot of that intellectual discussion has been wrong because instead of average family income or median family income. Sorry went up not 4% from 1970 toBut it went up by 39 percent and average wages instead of Falling by 13% They Rose by 13% And so I think some of the skepticism that is being greeted with these results is that it's flying to the face of a fairly long drawn-out discussion, not only within the policy around but among the kindness and you know people who are concerned about what's been happening to our standard of living. Well, that's exactly right and that's why it's going to take a while for all of this to be to be debated out by the experts who you know are going to have Divergent views on various of the specific issues, but you're quite right. There's been a lot of discussion of this issue of the decline in the standard of living or maybe the stagnation of the standard of living certainly it's a implication of our report that that's just totally misguided and is that to begins to sink in I think that people will see this has very very far-reaching ramifications. It's a massive money elusion among people and I mean, how can people be that wrong?Well, remember session has been going on for a long period of time as you correctly pointed out its The Economist who were wrong not so much the people an example. I like to use is the following at the beginning of the Dole campaign for the presidency this year. There was a lot of discussion of exactly this idea. There was also a good deal of discussion of employment in security and the American people rejected those ideas. I think that the outcome of the election was due in part to the fact that that just didn't Accord with people's intuitive feelings about this another less mundane example is the fact that there is a literature in sociology that it runs counter to the literature of Economics. For example, my colleague Clinton Jenks at the Kennedy School of government here at Harvard has taken the position that standards of living as measured by the frequency with which people have consumer durables the size of living space and that sort of thing all point in the direction of rising.It was living and counter dick to this previous economists view that stands the living have been stationary or even falling. So we're in for a lot of debate here, but I think that there's no doubt that it's going to come out on the side that the standard of living has. In fact been rising and bottom line is that we should adjust that CPI figure by 1.1 percent. That's right. Thanks so much for joining us. Really appreciate it. We oppose your talk to you. Thanks a lot Professor Dale. Jorgeson. He is the chairman of Economics department at Harvard University. He was a member of that boskin commission which came up with the recommendation joining me here in the studio today Chris Farrell, Minnesota Public Radio senior business and economics editor as we talk about the recommendation to refigure the Consumer Price Index Judith Brown is a past president of the American Association of retired persons. One of the most active groups representing seniors in America. She's also well-known financial advisor and the head of a jnb Associates inWilmington she joins us now to talk about this issue. Good afternoon Judith. Hi Gary. Do you think the AARP and other senior groups will oppose proposals to recalculate the CPI? Well, I think the issue has to look be looked at very carefully. I was interested in when Professor Jorgensen was talking about the increase in the quality of life and standard of living for people. I think we need to look at if that is really true or the most of the time for many people Social Security and the increase in Social Security is to help keep their standard of living where it's at not to increase it and I think that's our concern if we in fact lower the CPI by 1.1 percent a year or 65 year old Widow who gets about 8,500 dollars a year.Social Security she would lose benefits of about 22,000 dollars during her lifetime and on 8,500 dollars a year or even if she were living on ten thousand dollars a year that's pretty tough to do. She's not buying new cars and and other things that may do that. She's trying to pay for those prescriptions which have increased in cost significantly and buy some food. Wouldn't it make more sense though? Assuming they're the these economists are right and that the CPI has been overstating inflation wouldn't it make more sense than to make that recalculation and then perhaps increase the benefit levels.If we do it, if we do it from a technical point of view that might work in other words. Let's not make this a political issue. But let's in fact come to consensus after debate of what the Bureau of Labor Statistics should use technically to create the CPI. I guess. My major concern is if we make it political that's really not a place for politics. It needs to be a mathematical computation. You think the people that you deal with will believe if tomorrow the the Congress said yet, we're going we're going to recalculate this and actually you've been getting too much money. Do you think people that you deal with would believe that but they accept that? Well, I think they might be very concerned. This is not the first time this issue has been Revisited there was a time about five.Years ago, I believe when a proposal was put forth by Congress to have more than one CPI 14 retired persons who have different emphasis on the group of things that they depend on at that Chris was talking about before and once again the issue became whether or not it made sense to do that. And I think the bottom line was that if changes were to occur the CPI, they need to create be created by technical mathematical calculations not by politics and this is probably one of the wrong places for Congress to start delving into what is yourGut reaction. Do you think that this study was ordered to give politicians some cover it is a way to help balance the budget or do you think they were genuinely interested in finding out what the real cost of living is? Well, I think there's always been a lot of interest in this issue both the president and mr. Gingrich have said and mr. Gebhardt that they are not interested in a political solution, but I think it is one of the many things that we have to look at do it carefully as we go into the 20th century. We have some issues that we've got to solve. None of them are easy. We do need to hear all sides to the issue and then try to come to consensus one of these that was powerful about the study and other studies is that it's really within the mainstream of a series of studies that have come out over recent years and the Bureau of Labor Statistics.On down agree that the Consumer Price Index does overstate inflation and that there does need to be an adjustment. And so what I don't understand is we want to there is no such thing as a perfect measure but we want to move toward a better measure why not do that. And as Gary suggested if there are problems in terms of standard of living than government should increase the pay out if that's what it is necessary. But because the the Consumer Price Index is a measure that business uses the measure That Wall Street uses the Federal Reserve uses. The government uses me is one of the few measures out their economic statistics that really matters and we should it seems to me what this is almost we're getting a Luddite reaction. We don't like the results of this. Therefore. We're going to try and put it away into a box.I really don't think that that is the reaction that you're getting from groups like AARP. I think what we are saying is that certainly CPI is not perfect. But as I think what the professor Jorgensen pointed out is that this is an issue that does need to be debated and we do have to look at how we're going to do it and not just make some quick decisions on it because I think that could cause problems do you think that debate should focus purely on the accuracy of of the number that they're recommending or should it? Should it be a broader debate that would talk about the effects of changing the CPI?well, I think I think what would happen if they did change it is the type of thing that Chris was talking about whether or not we have to increase payment if the CPI is too low, but we all know that in this kind of a time when all we're trying to do is cut costs that's not going to happen. So I think we need to be very careful. We've worked very hard as a nation to have our citizens able to live good full lives. And Peep many people are living a lot longer and they need the few dollars. They have to last them for a very long time. So I think we need to focus on what the Bureau of Labor Statistics is telling us and then look at the issue. I think I'm not sure that the Bureau of Labor Statistics is saying that the CPI is wrong. Okay. Well, thanks for joining us Gareth. Good talking with you. My pleasure Judith Brown past president of the American Association of retired persons, and she is the head of jmb Associates in Bloomington. She is a financial planner. We're talking today about a proposal to change the way the Consumer Price Index is calculated as Chris Farrell has pointed out such a change would have profound implications all across the economy and well virtually everybody affected one way or the other if you pay taxes if you get a government check if you work for a company that calculates wages on right tied to the CPI. As you know that all the surveys show that many companies pay attention to what the Consumer Price Index of the Consumer Price. Index is running at 3 percent while those well, okay, we're will give 4 percent or maybe they're not that generous will get all these three percent raise so they match but if everyone becomes convinced or this is could becomes convinced that the CPI is overstated. It's running at 3% They'll say Gary 2% should be happy. Why are we doing this program Chris? If you'd like to join our conversation, give us a call to to summon 6,000 is our Twin City area. Number two two seven six thousand or her if your colleague from outside the Twin Cities one eight hundred two, four two two eight 282276 thousand one eight hundred two, four two two eight two eight. Clearly. The government has been understating inflation Crest let alone ten percent let them know on the second floor Nathan. Thanks for calling in. Yeah. My question is about the The long-term budget implications of the change in the CPI we've heard about how it will cause a change in the deficit. I'm interested in comparing this to the to the long-term problem we have with the growth growth of entitlements is this change in the CPI going to make a real dent in that problem 20 30 years from now or is it just gonna be a drop in the bucket. Once the demographic change is catch up with us. Oh, it's not a drop in the bucket. If you look at the numbers right now, I believe it's 20 29, which is when the Social Security trust fund runs into insolvency. This will delay that period of insolvency by about 20 years. So that's a real impact and yes it so this goes it doesn't solve the social security problem. There's other things that will need to be done to Social Security, but it relieves a lot of the pressure. It relieves any discussion Social Security being a crisis. So security becomes much more of a technical adjustment issue raising the retirement age a number of other factors, but if you can change your Year of Crisis from 20 29 to 20 years past that that's a long period of time two two seven six thousand two and City area number to join our conversation outside the Twin Cities one eight hundred two four two two eight two eight joining us from Washington is Minnesota Democratic Congressman Martin Sabo. One of the Congress is leading experts on the budget afternoon Congressman. Good afternoon. How are you? Just fine. What's in general? What's your reaction to this recommendation that the government should change the way it calculates the Consumer Price Index that index has a lots of ramifications for what government does. It should absolutely be as accurate as possible. I believe it's necessary to have some method of readjusting retirement benefits for people after they retire but it should be done accurately. We need to examine The boss can report. That's not the first report. There have been other reports that indicate. The miscalculation is lower some assert higher. We have to look at those carefully. We had a CBO report. Two years ago that put the problem the more in the neighborhood hamper percent and Bureau of Labor Statistics have been has been doing some adjustments to update their Market their Market Basket and other technical adjustments, which should have the impact of somewhat lowering the rate of inflation Congressman. How do you counter the suspicion that apparently that's shared by a lot of people apparently that the folks in Washington the politicians have ordered up this study just to give themselves give yourself some cover for entitlement cuts that are that are necessary to balance the budget. Well, I think people want to try and do it accurately making those adjustments are never easy politically or substantively and you want to be accurate. And so it helps but the boskin report needs to be looked at. There are lots of economists who are critical but in do we need to hear from those people and we need to look at those other studies and we have try and make it as accurate as possible for Pete has significant impact both on the expenditure side. And on the revenue side for people who are on Social Security. I'm sure they get a little nervous when they hear this. Oh, we were just starting with Judith Brown a couple of minutes ago. If the Congress were to decide to go along with the boskin recommendations and essentially cut back on the cut the CPI back by 1.1 percentage points. Do you think the Congress would then have the with the Congress be interested in raising Social Security payments to people who are right on the edge there who really depend on those Social Security payments. Well, that's one of these issues that need to be looking at the end. In there have been also, I think it was a CBO study that indicated that while they thought the CPI was generally overstated. They thought it was less overstated for seniors and for others in part because of the cost of particularly drugs and but in medical care in general, I think my own personal reaction is in looking at these studies over the years has been that it's somewhat overstated. I would be very apprehensive go to that full 1.1% that it's a sound somewhat High to me you think Congress is actually going to pass something along these lines in the next year or two. I don't know. I'm my own sense is we had proposals on the table last two years ago for a half a percent adjustment. Then be a the statistically the folks were about to make adjustments. A period of years that took care of about four-tenths of that problem my sense if it were to actually becoming law I would probably have to involve the president and Congressional leaders coming to Common agreement walking out the door and saying we have jointly agreed that this is the right thing to do and they dolls be talking at the same time. So the nobody spoke first. Thanks a lot for joining us Congressman. Okay. Thank you. Good talking with you. You better Minnesota 5th District Congressman Martin Sabo joining us from Washington Congressman Sable long recognized one of congress's leading experts on the budget here in the studio. I Minnesota Public Radio senior business and economics editor Chris Farrell as we talk today about that recommendation to recalculate the way the government figures the Consumer Price Index what it might mean for for America. Lots of people on the phone lines Chris. So I think we should get to some callers here first caller or next caller is it is From try Mountain Minnesota Val. Go ahead, please. That's Michigan, Michigan. Okay. I got a different approach to this in the way of saving money. I don't think the CPI is unfair. It's the way they figure the raises for example. If as lot of Congressman they're they're getting like $60,000 a year retirement. So if the raises two percent, they get 1,200 bucks now somebody that's getting a retirement with 10,000. I'm a 2% He gets $200. Now for loaf of bread is goes up one cent. Why does he get all that big raised in somebody else doesn't rest. I'd like to know. Well, there are a couple of things part of it. I think is he's and fairness and a lot of these programs are very very inclusive and the more you slice and dice your programs to more complicated they get and the more you open them up for political jiggering and I think part of this whole what this whole discussion about CPI is that this was something that everyone was hoping would not be opened up it provided a economic or technocratic way of avoiding Congress to decide whether or not to deal with some of these issues. Do you want to raise benefits every year? I mean, do you want to have a vote? You want to go in front there and say no, we don't want to raise the benefits for senior citizens because we don't think that now is the right time to do that. This is a way of insulating the politicians from this now they have to do it. There have been two proposals out. There one is called Cola light or Diet Cola which Has been there with says okay inflation is running at 3% and we're going to then just say but the the increase in the cost of living is will be 2 percent. So that's why it's called diet cola. That's one way of bringing some of the budget under control. The other is to say the CPI is just we we can't get close enough to understand the relationship to these price changes in standards of living and what we're getting a lot of concerns about his people standards of living. So there's been suggestions of let's just get rid of this whole area tied to the CPI and attach Social Security, which is your air cleaners example to what's happening with wages because really what pays for Social Security are people's wages. So the wages go up by two percent then that's what the increase will in benefits will be for people who are on Social Security and wages go up by 1 percent and just eliminate this Market Basket and all these problems about quality and substitution and Outlet effects and Ate all those effects and just sent essentially tie it to something that's easier than measure which is an average and average wage. A lot of economists would lose their job when they they absolutely would don't smile so much Brad your question, please hi-yah. Now, I know the current economics been on this is that this Market of Market Basket doesn't take into account the substitution effect, but if Economist break inflation into different components that usually talk about institutional inflation and wouldn't cutting CPI growth cut inflation in itself, you know, I mean What I mean by up to the 1.1% if everyone's growth got cut wouldn't inflation itself decline. Well, it would decline in this sense what we were sort of talking about earlier in joking a little about earlier in terms of wage increases as a piece of information CP is an extremely important piece of information. It's a benchmark obviously for the government. It's a real Benchmark if for certain Union contracts, it's a real Benchmark because wages are pegged off of changes in the Consumer Price Index, but for a lot of businesses and nonprofit organizations when they're thinking about pricing how much should they raise prices? How much do they wage raise wages? The CPI is one of the simple pieces of information they look at to say well what is inflation running what our price increases running and then well then how should I price myself off of that? Do I want to sort of want to stay with what's happening in the general economy? So if the publish CPI and it was generally accepted that the publish CPI was more accurate. I think that would filter through slowly through Economy, it would have implications for Consumer Behavior. People would not feel as much pressure to run out and buy something. It's yeah prices are increasing that much. Why should I bother well that actually puts enormous pressure on business to keep their prices stable or even cut their prices. Hmm. I want to ask you a question about this replacement business, you know, if price goes up on one deal and I'll go buy it somewhere else. Yeah for people who are living on fixed incomes or don't have much money to begin that that really isn't very valid is it and they don't have the kind of money that it would be that it would take I would think to be able to substitute all kinds of things because they're already buying basically the cheapest thing they get their hands on. Yes, but the growth of discount stores his still put enormous price pressure out there and there's always sales going on and so they're very sensitive sales very sensitive to coupons. And so I would not discount the effect even if you're on a fixed income, it's less where the real big division is. Do you live in a city or do you live in a rural area? Because in a rural area you have much less Choice than if you live in a city. Hmm. Okay, Janice is on the line for Mendota Heights. Yeah, Chris. Yes. Hi. So I just want to ask you. Can you answer me a question? Why is it that we always seem to want to have to do more in this Society? You know that that we want to it's like we have to get more and consume more and you know all this why can't we in other words instead of having to always, you know, like produce and progress. Why can't we slow down right now? That's what I did to me. Why isn't it healthy to look at the economy and say, you know, we have got a quality of life to me. That's very very good. If you compare from from before our standard of living, so why can't we bring it back down to let people slow down so they don't have to go out there spend more get in dead. You know, they've health care costs everything to me. If everyone took less I said, we'd all have more if we could bring it back down where we fortunately I can stay home and I don't even want to go out and work as I I don't even want to contribute to this the mass consumption. You know, I'm like, you know, let's let's bring it back. We only have a finite world. I mean, why do we have to constantly consume and eat up and pollutant all that stuff? Well, there's there's a we could do a whole show on that. There's a lot a lot of answers that that you could give speak religious who was one of the economist on the commission one of the five Economist and he did a study in 1949 and was looking at the automobile and improvements in the automobile and price increases in the on we will back then and compared it. I believe it was like say to a Model T and he came up with a figure of billions and billions of dollars that would have would be released in the economy. If it all hadn't gone into these price improvements, but you know, then you sort of think back and you think about you know, the airbags I mean, they're a little bit of controversy about them, but they're real advances there. So I think it's part of our system is part of its part of it the sort of fundamentals of human nature to want more. It seems to be we've never managed to get to to get rid of that in part of it. However, and this I think is the most important part of the discussion about four people in discussion about low-income people and discussion about the elderly has changed during a period of time which we have been growing more slowly than in the 1950s and 1960s and we were growing quicker and that fast economic growth allows people to be more generous and you end up with a more generous society and you end up with a more inclusive society and low on ammo and low unemployment. And so at least with our state of knowledge right now faster economic growth is better than slow economic growth. You were talking with Professor Jorgensen earlier though suggesting if I understood what you what you fellows were talking about correctly. It was it that really things have been perking right along here that that there's no hint need for hand-wringing about the economy not doing well. The economy has been doing better than the picture that has been painted. It by a lot of the economic statistics. However, the economy still took a step down from the 1950s and 1960s because this one point one percent percentage point adjustment keep going back and so you've raised the 50s and 60s the 70s and 80s look better in today looks better but it's still in terms of productivity and and rates of economic growth still not as good as it was so I mean the 50s and 60s were still a golden age and that's that's it is really a period of time when we increased a lot of our social programs. Hmm Kim your question, please. Yeah, I keep saying the old guns versus butter charts and I shift in a curve here somewhere and what I'm wondering is doesn't it doesn't this kind of wash out if CPI is lowered and so some government expenditures are lowered for those programs that are tied to it, but tax brackets and and wages also, Slow in their growth doesn't it end up doesn't it mean that the government is going to end up taking in less money and our raises in the future going to be less of doesn't wash out. Actually, it doesn't wash out because the there's an enormous impact on the budget deficit our interest payments. The government actually takes in more money from taxes. You're right but it also is paying out less so it solves doesn't completely solve but it's a big step toward bringing the long-term budget deficit under control. It helps in that and I think the other thing is in a very complicated Dynamic economy like ours where this is the this is a measure if people have a more accurate measure we're going to use our resources more efficiently people will make better decisions. And it doesn't it's not a zero-sum game. It's not a game where one person's gain is somebody's lost. It doesn't quite wash out. That way. There are like any capitalist system their games their losses you kind of looking at what's the net and net you come out ahead Justin. Terms of a kind of a simplified approach to this had we had we made this calculator change last year. What our deficit is this year's def budget deficit is what about a hundred and thirty billion dollars? Yes, something like that. How what would it be had we done here? She cut the but I think the number is next five years, you cut the budget deficit by two hundred billion the projected budget deficit by about 200 billion dollars with this chamber five years over five years of our ability billion. Yeah, that's right. Okay Harold your question, please just a couple of observations. I'm surprised if what they compute the CPI, they don't take into account Walmart and sales and that become a part of the change second one is that I think the one group in America that is better off than it's ever been is the elderly population today 25 years ago. To think of being old us to think of being poor and now that's certainly not the case. So it seems to me that those older people who are poor their problem should be dealt with outside of this CPI formula. Okay. Thanks for coming question. What about the why don't they calculate the Walmarts into this? It's the because what they're really trying to do is not measure standard of living there trying to take this similar good the similar goods and services as basket of goods and services and they're assuming that what you really want to know is this month versus a year or two and they try and take account of the Walmart effect a little bit and the Walmart effect does show up a bit in there is one of the reasons why the Consumer Price Index has been coming down for the past decade but It's a glancing blow. It's not a full statistical look and really incorporating Walmart Home Depot, whatever other Discount Store you want to talk about and really bring it into the center of this calculation. So it's kind of at the edges. It's they're not completely unrealistic but it's at the edges and the impact is not as great as it should be. So if I were if they were measuring a shirt that I bought say 15 years ago a Dayton's right? They would today still caught measure what that shirt cost of Dayton's or what they go over to Target and see what they were selling it. They would largely measure Dayton's now it would they might do Target it they also might have managed to get Target in there, but it would be Dayton's and with the boskin commission is saying is that statement when people sit around and table and say they don't make sure it's like they used to 15 years ago. You know what the Bosnian commission is saying is yeah, they do make sure it's like they used to 15 years ago. They make them better than they did 15 years ago and you can buy them at a cheaper Outlet. Hmm. Shirts are a little smaller than they used to be though. I think Ron your your question, please they're getting a little smaller. They see, you know, I think this whole discussion on the CPI calculation is kind of ludicrous, you know, somebody has come out and suggested that it's overstating inflation be interesting to see what where the conversation would have gone had had the Boston report come out and said it's understating inflation. And so now we've got to raise it, you know, a lot of people jumped on the bandwagon here thinking oh boy, here's a way to cut the federal deficit and all of a sudden the AARP and everybody else comes out of the woodwork. There are a lot of relevant discussions because there's a lot of linkages obviously between the CPI and so many segments of the population, but they really in fact at the end of the day when everything is all considered as far as a CPI is concerned is concerned the BLS apparently has a Ready for calculating it and why can't they make it an accurate calculation and in further mark break it down by income level because one person's, you know, furiously your at the 25,000 a year versus a hundred thousand or half a million. For instance. Your CPI is different. It's different for different economic levels. If the price of Yachts at a million dollar level goes up 20 percent. It doesn't affect most people but it so there's different cpi's for different income levels. If you want really want to get accurate about it. As far as the the coal is concerned Kohler shouldn't equal CPI. Cola should probably consist of CPI plus let's call it the the pi the productivity index so that there is some mechanism whereby you can compensate with the CPI. Fairly accurately for the actual inflationary effect and then include in with that an additional amount called. Let's say the pie that recognizes that the only way that that we can take into account in the increasing productivity over time is to have a separate Factor. So maybe the CPI isn't really what we ought to be. We're focusing in on that and saying that's that's giving retired seniors too big of an increase. Okay, whereas, you know, it really really in fact is a CPI plus the pi that they're getting and that may not be overstated. So two quick reactions. The Consumer Price Index is completely accurate. It is an atomic clock versus our productivity measurements. Our productivity measurements are terrible its output per worker per hour. They're pretty good in manufacturing, but manufacturers what 20 percent of the economy when you get into banking in medicine and all kinds of services our productivity measures are terrible so we might as well go ahead on the CPI anyway, and this is a very clever idea suggested but it's going to take a long time for us to even get the state of knowledge that we need for the productivity. The other point is whenever you get a discussions about the Consumer Price Index, you always end up, you know, my households Consumer Price Index having just moved here. My Consumer Price Index is is rising at a fairly rapid clip right now. So there's always differences between how house what's happening to a particular household. And what is happening on average the CPI is useful because it's it's a national average. We're Gathering a national average. We're and once you break it down into more and more components think it becomes less useful. Mmm, surely. I think you get the last question here. Well, I get my part of my quest is more of a comment. Okay, it sounds like to me that this Boston study is nothing more than a scheme for the federal government who would take in more taxes and pay out less in services to people. Well, what if what if the numbers are actually what if they're they're finding is accurate though? Wouldn't it wouldn't it make sense? If if if their numbers are accurate would it make sense? Then that that they they pay out fewer less and benefits and and actually increase more our collect more in taxes. I don't believe the record. That's my whole point. I give I think they could go by what has happened to my standard of living is decreased considerably and the cost of living has risen from electric bills to gas bills to telephone the food to property taxes health insurance and medical if this all goes up up and up these findings simply don't square with your your life. No, they don't thanks for your call. What about that? What about that Chris? I mean, I think that is a double bottom line issue. It's a very bottom line issue and it's one of those issues. There's been a lot of skepticism over the past decade the number show inflation coming down inflation coming down and You'll talk to somebody and said what are you talking about Chris? I just went to the grocery store and I just keep it. I was like this is expensive. These are averages they take a long time to work their way through the system the price of a lot of goods and services are coming down. But where this is that, you know, the hand-to-hand combat in the area of prices is quality. You know, you've had I've noticed in on your the expression on your face a little bit of skepticism on some this quality issue and what an economist or someone may call a quality improvement. You'll say that's a price increase. Hmm. I don't see that as a quality improvement. I don't see my getting more bang for my buck. That's just the price increase its more expensive. My standard of living is falling. No, it's a quality improvement. Your standard of living is going up. So that's weird this disjunction happens. And this is why the Bureau of Labor Statistics is so weary of this issue of quality improvement and one of the few areas that they've actually done it. As in automobiles with their little more confident because the automobile changes over time but it's still got those four wheels and you still got to sit there and the whole in the whole bit. So they're a little more confident about that so I can sit there and say that I think that you know with deregulation the cost of electricity will be coming down with that doesn't mean in someone's individual circumstances or for a population segment of population cost electricity may not be may be going up. What's going to happen with us this recommendation. This recommendation will be everyone is turn it looking toward President Clinton Bill. Give us some leadership. Tell us what to do. Stevie doesn't give them leadership. It will go into the Dustbin of white papers. Thanks Chris. Really? Appreciate you coming by. Thank you, Minnesota Public Radio senior business and economics editor Chris Farrell. Thanks for joining us this hour all of you who've been listening. And if you miss part of the conversation would simply like to hear the program again. We will be rebroadcasting as program at nine o'clock tonight here on Public radio nine o'clock are rebroadcast programming on Minnesota Public Radio is supported by the Pillsbury company Foundation caring for the community by giving kids a loving lift. Well that does it for our program today? I don't know what we're going to do tomorrow still up in the air. We've got a couple of balls up in the air. We'll see which one actually lands. Hope you can join us tomorrow. This week on The Splendid Table. It's an entire hour devoted to your calls boiling water 101. Be sure to call that's this Saturday at noon on Minnesota Public Radio. KN o WF M 91.1 You're listening to Minnesota Public Radio. We have a sunny Sky. It's three above in the Twin Cities the windshield 17 below at Cana wfm 91.1 Minneapolis. St. Paul are Twin Cities weather forecast calls for occasional cloudiness with flurries through the afternoon. Might hit 10 above at least supposed to clearing and cold tonight low 5 to 10 below. From NPR news in Washington, I'm Jackie Lydon, and this is Talk of the Nation. today joined Talk of the nation's book club of the air Willa Cather was a voice of the Prairie whose Works were like page markers on the pioneering Decades of the West today her book and heroin my