THE INFLATION MYTH

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You're adding up the numbers again, trying to figure out how to pay the bills coming due, when a man from the bank calls with a message that seems too good to be true. That calculator you got as a free gift for opening your account was, er, flawed. It has been adding up your bills all wrong and leading you to underestimate how much is left in the checking account. You can pay what you really do owe without giving up the weekly movie.

A panel of five eminent economists delivered an equivalent message to the government last week. The U.S. cost of living, said the panel, for years has been going up more slowly than the hallowed Consumer Price Index would suggest. One result is that the U.S. economy has been healthier for the past 20-odd years than anybody realized.

Of more immediate urgency, the government has been paying out much more in benefits, and collecting less in taxes, than was necessary to protect citizens against inflation. Switching to a more accurate measure would take the U.S. a long way toward balancing the budget by 2002. The time would seem propitious for such a move, with a safely re-elected President facing a Congress dominated by Republican budget hawks, and both seeking ways to slow the growth of spending on entitlements such as Medicare and Social Security before a real crisis breaks.

To the Clinton Administration and congressional powers, however, the news from the commission seemed too true to be good. Changing the way inflation is measured would mean telling Social Security pensioners and veterans that their benefit checks won't rise as fast as they have expected. And telling some millions of union workers that their future pay raises may be smaller. And telling some 160 million taxpayers they will eventually have to hand over more to the Internal Revenue Service. Even telling members of the First Wives Club that their alimony and child-support payments will increase less rapidly.

What Congress member or Administration official dares inform these people that for years they have been getting more than they deserved? "Everyone right now is standing like the scarecrow in The Wizard of Oz, pointing in both directions and looking to see who goes first," says Ari Fleischer, spokesman for the House Ways and Means Committee. "Clearly this reform will not be successful without President Clinton's leadership," says William Roth, chairman of the Senate Finance Committee. Clinton, however, has only asked his economic team to evaluate the report of that panel, which was headed by Michael Boskin of the Hoover Institution.

So rejiggering the CPI might be put aside for scholarly debate and perhaps glacial, piecemeal action--unless it becomes the last resort for producing a balanced budget. That could happen. Says New York Democratic Senator Daniel Patrick Moynihan: "The seven-year balanced-budget plan of the President says in the final years there's a 30% unspecified cut in discretionary, nondefense spending. Without [the CPI change] you couldn't do that." But even then Republicans and Democrats, Congress and the President, would all have to agree to join hands and jump together.