Robert Reich: Everything You Need to Know About How Chained CPI Will Screw Over Seniors

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3. Two errors right off the bat

First he says "The idea is that when prices go up, most people substitute lower cost items."
That is inaccurate. The idea is that when prices change, people tend to substitute to similar items that don't change as much. It's the relative change, not the relative cost, that's the factor. And it's not really an idea, it's a fact. People change their spending patterns based on relative price changes. And it works both ways. At $11/lb, I don't normally buy crab meat. But when it's on sale for $9/lb, I will, and buy less beef or pork or chicken. That's a substitution and is captured in the chained CPI.

Next he says "This makes no sense for seniors because they spend 20-40% of their incomes on health care and they can't substitute lower cost alternatives." That's not an issue with the chained CPI because it measures actual substititutions. If they're not making any, then it won't be reflected in the chained CPI. And he's forgetting about generic versus brand name in prescription medication. That's a substitution people make.