Greenspan Advocates Cpi Changes Adjustment Could Save Billions?

Federal Reserve Chairman Alan Greenspan stepped up his campaign Monday to get alterations to the government’s main price gauge, which he said would save taxpayers $150 billion over five years.

Appearing before the Senate Finance Committee, Greenspan pushed his proposal to create a panel of experts who would have authority to make revisions in the Labor Department’s Consumer Price Index to more accurately reflect inflation pressures.

The CPI is used to make annual cost of living adjustments for millions of Americans receiving Social Security and other government benefits. But Greenspan has insisted that the CPI is fundamentally flawed and is overstating inflation.

Republican lawmakers, anxious to find ways to make the more than $1 trillion in cuts needed to produce a balanced budget by 2002, have seized on Greenspans’ criticism. House Speaker Newt Gingrich even went so far as to suggest eliminating the Labor Department agency that handles the CPI if it did not quickly make the necessary changes.

But in his testimony today, Greenspan sought to defend the government number crunchers.

Labor Department statisticians “can work 24 hours a day and double their staff” and still be unable to adjust the CPI to account for real changes in the cost of living, Greenspan said.

“The replacement of a mechanical procedure by the informed judgment of experts would best … insulate taxpayers and (federal) benefit recipients from the effects of changes in the cost of living,” Greenspan said.

Greenspan earlier this year suggested that the index overstates inflation by between 0.5 and 1.5 percentage points.

While many Republicans have applauded the proposal as a way of reducing the budget deficit, Democrats have said the plan is merely a back-door way of trimming benefits by attempting to shift the political blame elsewhere.

The Labor Department’s Bureau of Labor Statistics has said the evidence is unclear on how much the CPI may overstate inflation.

Greenspan said today that any changes in the CPI by his proposed expert panel should take into account the spending habits of retirees.

But he said it might be a mistake to make different calculations for military pensioners, whose health costs generally are reimbursed, and other retirees.