Greenspan Suggests Panel to Determine CPI ‘Bias’

Federal Reserve Board Chairman Alan Greenspan suggested Thursday that Republican lawmakers frustrated by what they see as an artificially high government inflation gauge should create a commission of experts to make determinations and bypass the Bureau of Labor Statistics.

A lower consumer price index would reduce Social Security benefits, increase some taxes and make it easier to balance the budget.

Greenspan contends that the index overstates inflation by between 0.5 and 1.5 percentage points, but economists at the Labor Department statistics bureau have been unwilling to make any quick changes in the gauge, which they have been compiling since 1919.

The bureau has said it believes Greenspan exaggerates the CPI’s inaccuracy and that it plans changes in the index in 1998 that would cut its measure of inflation by 0.2 or 0.3 percentage points.

But rather than waiting years, Greenspan said, Congress could ask “a professional group of analysts” to meet annually to “indicate the most likely bias.”

Benefits from government programs such as Social Security, in which recipients’ payments are increased along with changes in the cost of living, could then be adjusted based on what the panel of experts believed the CPI ought to say.

“Instead of trying to adjust the CPI by going into the guts of it and trying to alter it . . . all we need to know is roughly what that bias is,” Greenspan told the House Banking subcommittee on monetary policy.

Rep. Michael N. Castle (R-Del.), the chairman of the subcommittee, said Greenspan’s suggestion is probably a good idea. Other Republicans have embraced it as a relatively painless way to reduce the budget deficit by $150 billion over five years. House Speaker Newt Gingrich (R-Ga.) has even suggested that Congress eliminate the Bureau of Labor Statistics if it does not make the desired changes.

William Barron, deputy commissioner of the statistics bureau, said Greenspan’s proposal is “a very excellent idea” because “the issues with the CPI . . . are fairly intractable.”