Greenspan's Phantom Foe
Federal Reserve Chairman Alan Greenspan has admitted to Congress that inflation - which he has been fighting with a series of interest rate boosts - is not really rising as fast as had been thought, that indeed the rate of inflation has been overestimated by as much as 50 percent.</br></br>Because of improvements in the quality of goods and services, and other technical factors, "the official Consumer Price Index may currently be overstating the true cost of living by perhaps one-half percent to 1 1/2 percent per year," Greenspan told the House Budget Committee last week.</br></br>That means, in effect, that last year's official CPI rise - a modest 2.7 percent - was in reality between 2.2 and 1.2 percent. Quite a difference!</br></br>Greenspan's purpose in bringing up the overstatement of inflation in the economy was to make the valid point that various government programs, such as Social Security and military and civilian pensions, that are indexed to the cost of living have provided overgenerous cost-of-living adjustments (COLAs), thus adding to the federal deficit.</br></br>"For example," Greenspan said, "if the annual inflation adjustments to indexed programs and taxes were reduced by one percentage point - and making the admittedly strong assumption that there are no other changes in the economy - the annual level of the deficit will be lower by about $55 billion after five years, including the effects of lower debt levels."