[Congressional Record Volume 143, Number 13 (Wednesday, February 5, 1997)]
[Senate]
[Pages S1034-S1035]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




      SENATE RESOLUTION 50--RELATIVE TO COST-OF-LIVING ADJUSTMENTS

  Mr. ROTH (for himself and Mr. Moynihan) submitted the following 
resolution; which was referred to the Committee on Finance:

                               S.Res. 50

       Whereas the final report of the Senate Finance Committee's 
     Advisory Commission to Study the Consumer Price Index, 
     chaired by Professor Michael Boskin, has concluded that the 
     Consumer Price Index overstates the cost of living in the 
     United States by 1.1 percentage points;
       Whereas Dr. Alan Greenspan, Chairman of the Board of 
     Governors of the Federal Reserve System, has testified before 
     the Senate Finance Committee that ``the best available 
     evidence suggests that there is virtually no chance that the 
     CPI as currently published understates'' the cost of living 
     and that there is ``a very high probability that the upward 
     bias ranges between \1/2\ percentage point per year and 1\1/
     2\ percentage point per year'';
       Whereas the overstatement of the cost of living by the 
     Consumer Price Index has been recognized by economists since 
     at least 1961, when a report noting the existence of the 
     overstatement was issued by a National Bureau of Economic 
     Research Committee, chaired by Professor George J. Stigler;
       Whereas Congress and the President, through the indexing of 
     Federal tax brackets, Social Security benefits, and other 
     Federal program benefits, have undertaken to protect 
     taxpayers and beneficiaries of such programs from the erosion 
     of purchasing power due to inflation;
       Whereas Congress and the President intended the indexing of 
     Federal tax brackets, Social Security benefits, and other 
     Federal program benefits to accurately reflect changes in the 
     cost of living; and
       Whereas the overstatement of the cost of living increases 
     the deficit and undermines the equitable administration of 
     Federal benefits and tax policies: Now, therefore, be it
       Resolved, That it is the sense of the Senate that all cost-
     of-living adjustments required by statute should accurately 
     reflect the best available estimate of changes in the cost of 
     living.

  Mr. ROTH. Mr. President, today, my friend Pat Moynihan and I are 
submitting a sense-of-the-Senate resolution regarding the accuracy of 
the Consumer Price Index. Last week the Finance Committee kicked off 
our first hearings of the 105th Congress with a very distinguished 
panel of experts in the field of economics and Dr. Alan Greenspan, 
Chairman of the Board of Governors of the Federal Reserve System.
  Mr. President, probably the most significant issue that faces 
Congress this year is the accuracy of the Consumer Price Index, and I 
believe that Congress and the President need to seriously address the 
economic ramifications of an accurate CPI.
  One of the roles in government is to protect American families from 
inflation. In doing so, it is important that we are able to precisely 
measure inflation.
  I cannot emphasize too greatly--that is what these discussions are 
all about--the accurate measurement of inflation. If the index is too 
high, it overcompensates retirees and others and undertaxes many 
taxpayers. If it is too low, it undercompensates retirees and overtaxes 
the taxpayer. What we want in fairness to all is as accurate an index 
as possible.
  Obviously, this is a very sensitive issue, affecting retirees and 
taxpayers directly as well as wage earners and others.
  In the spring of 1995, the Senate Finance Committee appointed a blue 
ribbon commission, headed by Dr. Michael Boskin, to study the 
methodology used to compute our current measure of inflation, the CPI. 
The panel also included leading experts in the field of price indexes, 
they include:
  Dr. Dale Jorgenson, Harvard University; Dr. Ellen Dulberger, IBM 
Personal Computer Company; Dr. Zvi Griliches, Harvard University; and 
Dr. Robert Gordon, Northwestern University.
  In their interim report, released in September 1995, the Boskin 
Commission concluded that the upward bias using changes in the Consumer 
Price Index to estimate changes in the true cost of living is about 1 
percentage point per year.
  Dr. Boskin and the other four commission members have now completed 
their final report and have concluded that this critical government 
statistic is not as accurate as possible. Since this report suggests 
that the Consumer Price Index has an annual upward bias of about 1.1 
percent, clearly this is a significant finding and should be taken 
seriously.
  Dr. Boskin and his colleagues have also suggested to the Finance 
Committee that a new measure of the true cost of living may be needed.
  Inaccurate government statistics--particularly one as important as 
the CPI--are unacceptable. Steps should be taken to change the 
procedures so that the measure of the CPI is as accurate as possible.
  I want to stress that any action we take on this report must be 
broadly and deeply bipartisan.
  We must also have the full cooperation of and leadership by the 
Clinton administration. I hope the President will not miss an 
opportunity to address this issue in his fiscal year 1998 budget he 
submits to the Congress this week. Clearly this reform will not be 
successful without the President's leadership.
  Mr. MOYNIHAN. Mr. President, might I first take the opportunity to 
congratulate the chairman for this initiative. It is characteristic of 
his leadership of the Finance Committee, which is bipartisan whenever 
that is possible, which is factual, which seeks evidence and answers.
  This sense-of-the-Senate resolution recognizes the mounting evidence 
that, contrary to the intent of the Congress and the President, Federal 
tax provisions, Social Security benefits, and other Federal program 
benefits are being overadjusted for inflation.
  The resolution expresses the sense of the Senate that:

       * * * all cost-of-living adjustments required by statute 
     should accurately reflect the best available estimate of 
     changes in the cost of living.

  In its final report issued on December 4, 1996, the Advisory 
Commission to Study the Consumer Price Index--the Boskin Commission 
concluded that:

       While the CPI is the best measure currently available it is 
     not a true cost of living index. . ..

  The Boskin Commission concluded that the CPI overstates the cost of 
living in the United States by 1.1 percentage points.

[[Page S1035]]

  The Commission's findings are very much in line with the prevailing 
professional judgment of economists as to the size of the upward bias 
in the CPI. In October 1994, in a memorandum to the President entitled 
``Big Choices'', then-OMB Director Alice Rivlin stated that the ``CPI 
may be overstated by 0.4 percent to 1.5 percent.'' And in testimony at 
a joint hearing of the Senate and House Budget Committees in January 
1995--and reinforced in testimony last week before the Senate Committee 
on Finance--Alan Greenspan, Chairman of the Board of Governors of the 
Federal Reserve System, estimated the range of plausible values at 0.5 
to 1.5 percentage points.
  The standard objection to correcting the Consumer Price Index has 
been, to cite one such statement, ``The right way to adjust the CPI is 
to allow the experts at the BLS to continue doing their jobs and keep 
politics out of it.''
  We now have the definitive response from Alan Greenspan, Chairman of 
the Board of Governors of the Federal Reserve System. In testimony last 
week before the Finance Committee, he reported that the Federal Reserve 
Board had made its own study of this issue and had come to roughly the 
same conclusions as those of the Boskin Commission. He recommended a 
two-track procedure. First, let the BLS improve the CPI by as much as 
can be done and as quickly as it can be done. And second, establish an 
independent national commission to correct for the remaining upward 
bias. He then said:

       There has been considerable objection that such a second 
     track procedure would be a political fix. To the contrary, 
     assuming zero for the remaining bias is the political fix. On 
     this issue, we should let evidence, not politics, drive 
     policy.

  To say again, to do nothing in the face of overwhelming evidence 
would be a political decision. Wrong-headed and shortsighted, with 
large long-term implications
  And to do nothing until we have a more precise estimate of the bias--
as if estimating changes in the cost of living is equivalent to 
measuring atomic weights--recalls the wise admonition of Lord John 
Maynard Keynes who said:

       It is better to be approximately right than precisely 
     wrong.

  There is some history here.
  It happens that this Senator's association with the statistical 
system in the executive branch began over three decades ago. I was 
Assistant Secretary of Labor for Policy and Planning in the 
administration of President John F. Kennedy. This was a new position in 
which I was nominally responsible for, inter alia, the Bureau of Labor 
Statistics. I say nominally out of respect for the independence of that 
venerable institution, which as I noted earlier long predated the 
Department of Labor itself. The then-Commissioner of the BLS, Ewan 
Clague, could not have been more friendly and supportive. And so were 
the statisticians, who undertook to teach me to the extent I was 
teachable. They even shared professional confidences. And so it was 
that I came to have some familiarity with the field.

  Upon our arrival in Washington with the new administration in 1961, 
we had waiting for us a report on price indexes from a committee led by 
George J. Stigler, who later won a Nobel Prize in economics. The 
committee noted that:

       If a poll were taken of professional economists and 
     statisticians, in all probability they would designate (and 
     by a wide majority) the failure of the price indexes to take 
     full account of quality changes as the most important defect 
     in these indexes. And by almost as large a majority, they 
     would believe that this failure introduces a systematic 
     upward bias in the price indexes--that quality changes have 
     on average been quality improvements.

  Through indexation of Federal tax brackets, Social Security, and 
other Federal programs, Congress and the President have undertaken to 
protect taxpayers and beneficiaries from the erosion of purchasing 
power due to inflation.
  Based on over 35 years of mounting evidence, it is clear that the 
current formulas for indexation overstate the true cost of living. Over 
12 years the upward bias increases outlays and reduces revenues, for 
programs tied to the CPI, by a cumulative $1.07 trillion.
  The actuaries of the Social Security system estimate that a 1.1 
percentage point correction would eliminate about two-thirds of the 
long-run deficit in the Social Security Program. The trust fund 
exhaustion date would be extended by more than 20 years, from 2029 to 
2052.
  Somewhat more than one-half of the 1.1 percentage bias can be 
eliminated rather quickly if the BLS would develop a cost-of-living 
index [COLI] and factor into their calculations research on quality 
improvements. Members of the Boskin Commission think it can be done 
within a year. Over time, some of the remainder of the bias could be 
reduced by further research on measuring quality improvements. Any 
residual can be dealt with by an independent national commission, as 
suggested by the Boskin Commission and by Federal Reserve Chairman 
Greenspan.
  The computational procedures that would be used by BLS for a new cost 
of living index [COLI] are now used by the Bureau of Economic Analysis 
[BEA] in the calculations of GDP and its components--consumption, 
investment, and so on. BEA uses a Personal Consumption Expenditures 
[PCE] deflator to estimate changes in real consumption. For the 12 
months ended November 1996, the CPI increased by 3.3 percent. Yet over 
roughly the same period, the PCE deflator increased by only 2.5 
percent. BEA's use, in the PCE deflator, of more up-to-date consumption 
patterns and of adjustments for quality, lowers the reported inflation 
rate by 0.8 of a percentage point relative to the CPI. And this is 
consistent with what you would get if BLS developed a COLI with 
adjustments for quality improvements; that is, it is close to the 1.1 
percentage point estimate of the bias.
  I hope we will have broad support for this resolution on both sides 
of the aisle, and that we will do the Republic some good today. Mr. 
President, thank you for your courtesy. I yield the floor.
  Mr. ROTH. Mr. President, let me thank the Senator from New York for 
his continuing leadership in this matter. I would like to underscore 
two things that he said.
  One is that all we seek to do is to make the measurement of inflation 
as accurate as possible. That is just good government.
  Second, we are anxious to have the support of our colleagues on both 
sides of the aisle and we will be sending a letter to our colleagues, 
signed by the two of us, urging them to join us in this good government 
venture.
  Mr. MOYNIHAN. Good government venture.
  Mr. ROTH. I thank very much the distinguished Senator for his able 
leadership.

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