Healthcare premiums and stagnant wages all in two easy to read graphs...

Health care costs have contributed to stagnant wages for most workers. I don't THINK this is controversial. 

Below is a chart showing the increase in annual premiums paid for coverage, 2002-2012.  The cost in dollars terms you see below are BOTH the employee and employer contributions to the total price paid for health insurance. The employee pays part of the cost out of their wages and the employer pays part of the cost on behalf of the employee---this is known as "non-wage" compensation.



Source: Forbes

In 2002 a family policy cost $8,003 dollars.  Using the BLS inflation calculator, in today's dollars that would be equivalent to $10,242.  Yet, the policy today actually costs $15,745---$5,503 or 54% more than the if the policy increased at the general rate of inflation as calculated by the Consumer Price Index.

Here is another chart showing the percentage changes in various measures of wages and health care premiums paid by workers.  Green line is the percentage change in wages.  The blue and red lines are what employees and employers contribute in premiums. The gray line is the general level of inflation as measured by the Consumer Price Index (CPI).

Green line is relatively flat.  Red and Blue lines increasing at steady rate.  Red and Blue lines are the ones contributing to the flat green line.  Health care premiums holding down wages.  Can you see it?



Source: Forbes

Note: Not saying this is the WHOLE reason, but as with many issues there are many contributing factors.  This is just one, but a pretty important one

Nice infographic on the incredible amount of food that is wasted from the field to the table. These numbers look very bad, but are they really?

You will have to click HERE to see a larger image.

On first look, I was aghast at the amount of "leakage" or loss of product along the supply chain from field to table. 

But then I thought about it.

With all the latest advancements in technology, processing and packaging, how aweful HISTORICALLY the waste and loss must have been compared to today, in real terms.

In nominal terms, there is going to be a lot of waste because we produce more food than ever.

If you look at the percentages they use for "developed" vs "developing" countries, I would venture to say that 50 years ago you could  apply today's developing countries percentages to the developed worlds.

In other words, if developled countries are doing twice as well as 50 years ago in reducing waste/leakage but it STILL seems like a lot of spoiled/damaged/lost food.

Or...it could be the developed world consumers are so picky that even slightly damaged produce does not get put on the shelves and is thrown out, whereas, the our fore-mothers/fathers would not have been so finicky about a bruise or two.

Source: CNN

Just back from Disney World with an Economics lesson. You did not think I was riding the rollercoaster, did you? Has Disney raised its Theme Park prices TOO MUCH in the past two years since I last visitied? See my analysis here.

Below are the prices for admission to the Disney World Parks in Orlando, Florida.  Just got back from there for vacation!

A one day ticket today for a person 10 and older is $89.00 and under 10 is $83.00.

In 2010, I did a blog entry on elasticity of demand using a price increase they imposed at the time (go HERE for that entry).  At that time the price increased to $82 for 10+ and to $74 for under 10.

+

For the 10+ ticket that is an 8.54% increase and a 12.16% increase for the under 10 ticket.

If we were to factor IN inflation (using the BLS calculator) that $82 dollar 10+ ticket in 2010 should be $86.57 in today's dollars. It is actually $89.00)

The under 10 ticket ( $74 in 2010) would be $78.13 in today's dollars. It is actually $83.00.

Quite amazing that the Disney was able to increase their ticket prices FASTER than the general rate of inflation DURING a prolonged economic downturn. That shows some significant pricing power within this market.

Hold your Fast Pass, there Goofy!!

Let's look at what is probably (I have no idea for sure, though) a more common ticket purchase---a 3 Day ticket. 

A 3 Day 10+ ticket cost $232.00 in 2010. In 2012 dollars that is $244.94.  The ticket price today is $242.  Increased slightly less than the rate of inflation.

A 3 Day under 10 ticket cost $214.00 in 2010. In 2012 dollars that is $225.95. The ticket price today is $226.00.  Increased slightly less than the rate of inflation as well.

So, this result shows Disney may not have the pricing power I initially thought they had.

I suppose I could do the math to figure out the rest of the days, but I am still tired from the trip.

Extra credit if you want to do it for me.  :)

Here are 16 predictable things that happen when a good and/or service is banned/outlawed. Happens like clock-work. The costs accrue quickly!

When you ban something, or severely restrict its free trade, that most people want (not just insiders, but the public at large), a predictable domino effect will take place.

Found (HERE) the following 16 predictable things that follow the ban/outlawing of a good and/or service that usually happen on cue.

When a law bans exchanges wanted by everyone directly involved a number of things happen:

1) The exchanges continue;
2) Prices of the banned items rise and wars to control turf begin;
3) New criminals are created, including many people who are ordinary good people (like colored margarine seekers);
4) New enforcement agencies and staff are created;
5) New jails are built and new jailers are trained;
6) Laws, lawyers and lawsuits proliferate;
7) A new branch of law and its practitioners prosper and support further extension and complexification of regulations;
8) A portion of the entire apparatus of enforcement and punishment is progressively corrupted;
9) New agencies and staff are created to discover, eliminate or suppress the corruption;
10) Many begin to support ever more drastic suppression and punishment;
11) A profitable subliminal partnership emerges unifying the interests of violators and enforcers as the profits from the illegal trade are negotiated and distributed among them;
12) The business engages all of the following: bad people buying and selling, good people buying and selling, police, judges, academics, enforcement trainers and suppliers, prison builders and suppliers, staff to support all of this, journalists to cover it, media organizations to sell the coverage;
13) Completely uninvolved people are caught in crossfires, including taxpayers;
14) The costs of controlling the new flourishing evil continue to grow seemingly without limit;
15) The vast network of beneficiaries of the law applaud and lobby for its continuation, vilifying all opposition;
16) Everyone gets more and more discouraged and inclined to hate all humanity. This list is probably too short.

Don't laugh--I have a Vegan Restaurant recommendation for you. Those of you who know me know how ridiculous THAT is. However, I believe this very small chain of restaurants will be the next "big thing" in casual dining. Just wish I had the money to invest!!

I am by NO MEANS a foodie, food critic or connoisseur of fine food.  In general, I dislike most vegetables and have an elevated disdain for green vegetables.  I am a meat and potatoes kinda guy.  That last descriptor is not a generalization. It is pretty much a truism that plays out on my plate at just about every meal.  Bad on me, so says my cholesterol level and blood pressure.

My daughter is a vegetarian/vegan.  Has been for several years. Don't understand it, but I respect it.  I just tell her to leave me out of it. Ha! Did not work so well.  Went to a vegan restaurant in Dallas, Texas with her on her birthday once.  Tasteless food prepared and served by, well, equally distasteful people.  Hated every minute of it and stopped for fast food on the way home.  True story.

We moved to Chicago a year ago.  For her birthday, she wanted to go to a dinner and a show. She found a vegan restaurant in the Wicker Park area of Chicago.  I was fooled into trying the "life-style" again. We went to a restaurant called "Native Foods". Attitude changer!!

I have read stories about investors who accidentally came across "the next great thing" in terms of a budding business, got in on the ground floor, and cashed out rich.  I always wondered what it would be like to be "that guy" and be presented with "that idea". I gotta say, this place is THAT THING!  The only thing missing for me is the financial capital to invest, because I believe this will be a hit and it has tremendous growth potential.

I don't know how they do it with the "fake meats", BUT if they can fool and satisfy a confirmed carnivore like me, then I have to think their upside in terms of a cross-over effect to gain market share is huge.  Sell someone like me on vegetarian food/meats and you have a winner.

Another upside---they seem to hire "normal" people (in look and attitude) who don't look like they just came from an Animal Rights Front raid.  Don't ask me to elaborate on that, you know darn well what I mean.

Native Foods has VERY few locations at this time, but they apparently have plans to expand.  If you have a chance to eat at one, I would highly recommend it.  Not sure if it is just this one location that does it well or not. Check out their website, find a location and try it.

Now, if I can just find some money to invest...

Note: I am in no way affiliated with Native Foods and dont know anyone associated with the company. I dont even know if they are looking for outside investors.

I am just a hungry person that occassionally stumbles upon something worthwhile. 

See here the latest level of Household income it takes to be considered a high income earner. You will be surprised at how little it takes to be near the top!

Interesting graphic from the Wall Street Journal.  The article states these figures are "national" and do not completely reflect regional differences in income relative to cost of living.

Numbers at the bottom left indicate what it takes to be in the different percentiles of income.  A key word is "Household"---this could be the income of just one person or multiple people that make up a household.

For instance, you could have two teachers married to each other, both earning $55,000 per year (not unrealistic) and be considered in the TOP 20% of income earners.  Surprised you are that high in the "rankings"??

Curious as to how much (or how little, depending on your perspective) members of the Military earn per month? See the numbers here....

I don't think most people know what members of the military earn on a monthly basis.  Here is the pay schedule for enlisted men/women.  I got this from the latest Executive Order signed by the President to give Federal Employees a raise. Find that HERE. You will also find the Officer pay schedule there as well.

Each branch of the military has different names for the "E" designations.  Go HERE to find the equivalent rank for each branch.

I was in the Marine Corps--E-1 (Private), E-2 (Private First Class), E-3 (Lance Corporal), E-4 (Corporal), E-5 (Sergeant), E-6 (Staff Sgt), E-7 (Gunnery Sgt), E-8 (First Sgt OR Master Sgt--depending on the career track), E-9 (Sgt Major). 

(Click on images to get a clearer view)

The President quietly signed an Executive Order yesterday giving pay raises to Federal Workers, including the Vice President, the Senate, and the House of Representatives. See here the new pay schedule for these deserving ladies and gentlemen...

Seems like bad timing to increase pay for Federal employees now, in the middle of a BUDGET CRISIS, but what do I know.

Yesterday (Dec 27th) President Obama signed an Executive Order authorizing pay increases for all classes of Federal Workers. You can find the whole Executive Order HERE. 

Here is a clipping of the new pay schedule for your Federal elected politicians and other key Federal positions. 

If you spill milk after January 1st you will want to cry because it might cost as much as $8.00 a gallon. Congress does it to us AGAIN! This is a strange story you have to read to believe.

Caught up in the morass in Congress (House AND Senate) is the fate of the latest Farm Bill.  If it is not renewed on or before January 1st, the price of milk MAY dramatically increase as a result. (See HERE for more on this story).

This is the result of an archaic provision that says if the bill is NOT renewed in a timely manner then the formula for determining the prevailing "Price Floor" paid to dairy farmers will revert to calculating the price floor using 1949 (yes, you read that right) production costs.  Adjusted for inflation, that means the price floor is estimated to DOUBLE, hence doubling the price of milk overnight.

A price floor is used to help reduce individual farmers exposure to market price fluctuations that agricultural commodities are routinely subject to due to factors generally out of control of the farmer.  It guarantees, in advance, the farmer will receive a minimum price for their commodity if the bottom falls out of the market and the market price falls below production costs.  This has been farm policy in the US since the 1930's.

If the market price decreases (demand decreases, supply increases, or some combination of both) then the farmer receives the predetermined Price Floor price. The Price Floor in this case is said to be "Binding" on the market. The Price Floor price will become the de facto market price for everyone else.

If the market price increases (demand increases, supply decreases, or some combination of both) then the farmer receives the market price and not the Price Floor price.  The Price Floor is said to be "Non-Binding"on the market.  Farmers are receiving a market price HIGHER than the Price Floor. They are better off and don't need the Price Floor to fall back on.

The purpose of the Price Floor is to keep farmers from losing money in the short-run so they can stay in business.  It guarantees them a certain amount of income to meet expenses and hopefully break-even, at best, at the end of the harvest.

Here is the kicker: Right now the market price for milk is HIGHER than the Price Floor (dairy farmers are not unhappy at this point). The Price Floor is "Non-Binding". However, if the Farm Bill does not pass in a timely manner, the Price Floor is expected to increase significantly ABOVE the market price and the Federal Govt will pay the Price Floor price to farmers.  The Price Floor will become the new de facto market price everyone else pays.FOR NO OTHER REASON THAN THE INACTION OF THE HOUSE AND SENATE!

Below the fold, is my detailed explanation of how a Price Floor works. Complete with graphs!!! 

This is an important concept in Microeconomics, so I hope it helps with understanding how this particular government action described above affects a market.

What do the Economic pie and retail opening on Thanksgiving have in common?

The "economic pie" does not get bigger by shifting the slices around the plate.  Retail sales are not the source of economic growth, but a by-product of it. This does not surprise me at all.

The New Black Friday Strategy Backfired On America's Retailers

"Early store openings for Black Friday only shifted the holiday consumption pool, which was the opposite of the intended effect," he wrote. 

"Retailers wanted early buying to lead to splurge buys towards the end of the season (emphasis mine). The thought they hoped to trigger: 'man, did I REALLY get everyone enough?'”

Do the people who run these large stores actually read the business section of the paper?

"To increase taxes on the rich, or to decrease deductions available to the rich, that is the question."--- I TRY to answer here...

The "game" of doing your taxes is to minimize the income that is subject to taxation.  People at all income levels do this.  What I would like to do with this post is to do a basic explanation of how taxes work within the framework of potential policy changes coming down the pike---changes in Marginal Tax Rates and/or deductions you can take to reduce your tax liability.  I tried to make this as simple as possible  and dont pretend to know all the issues.  Let me know where I am going wrong.

Marginal Tax Rates are the tax rates, expressed as a percent, assessed on "each additional dollar" of taxable income (wages and/or other sources of taxable income, i.e. interest on savings accounts).  In the US we have what is called a "Progressive Marginal Tax Rate System"--the more you earn, the more you pay in Federal Income Taxes.

It looks like this:

Confusing, isn't it.  Let's keep it simple and look at a Single Person who earns $600,000 per year (a bonified 1%-er) with all sources of taxable income accounted for.  Assume this person has qualified deductions equal to the average of those in his/her income range. This (2009) table shows those average deductions in the major categories that people typically take deductions. This is  the latest data I could find. Wont be completely accurate but we will get the message.

So, if this person was representative of the average in their income bracket, their qualified deductions would total ($38,149 + $48,317 + $25,527 + $18,488) $130,481.

 

Instead of having a taxable income of $600,000, they would have a taxable income of $469,515. See the difference?

 

If you look at the first table with the ascending Marginal Tax Rates (10%, 15%, 25%, 28%, 33%, 35%) you will see that our person earns more than $338,351 so this puts them in the 35% tax bracket, so all $469,515 is taxed at 35%, right? right?...Well, no. 

 

That is their Marginal Tax bracket, meaning ANY income OVER $388,351 is taxed at 35%,  The taxable income earned prior to $338,351 is taxed at (1) different marginal tax rates and (2) on different benchmarks of taxable income. 

 

Here is the math:

 

The first $8,700 of this persons taxable income is taxed at 10% ($8,700 minus 0 = $8,700 X 10% = $870).

 

The taxable income between $8,701 and $35,350 is taxed at 15% ($35,350 minus $8,701 = $26,649 X 15% = $3,997)

 

The taxable income between $35,351 and $85,650 is taxed at 20% ($85,650 minus $35,351 = $50,299 X 25% = $12,575)

 

The taxable income between $85,651 and $178,650 is taxed at 28% ($178,650 minus $85,651 = $92,999 X 28% = $26,040)

 

The taxable income between $178,651 and $388,350 is taxed at 33% ($388,350 minus $178,651 = $209,699 X 33% = $69,201) 

 

Any taxable income OVER $388,515 is taxed at 35% ($469,515 minus $388,515 = $81,000 X 35% = $28,350).

 

 If we add up all the numbers in bold we will get the TOTAL Federal taxes this person owes--$141,033.  (Assuming they had NO with holding throughout the year, this is the amount they would write a check for). Remember, this total was the result of taxing different levels of income at different marginal tax rates).

 

If we want to find the Average Tax Rate on our taxable income we would divide $141,033 by $469,515 = 30.03%. 

 

While this person is in the 35% marginal tax bracket, he effectively pays 30% of his taxable income in Federal taxes. The average is lower than the marginal because large chunks of his income is taxed at lower rates.

 

Now that we understand that, let's look at how a policy change on this taxpayer will effect him/her.

 

I believe it is likely, as a result of compromise, the Marginal Tax Rate for the 35% taxpayer will increase to 39.% ("Clinton era" marginal tax rate on the highest level of taxable income).  You can think of this as a 4.6 percentage point increase OR a 13% increase in the rate (39.6%-35% = 4.6%/35% = 13%).

 

Assume all the other Marginal Tax Rates stay the same (there is talk of moving the 33% rate to 36% too, but we will ignore that here).  The only new calculation will be on the income OVER $388,515, which was $81,000.  $81,000 X 39.6% = $32,076.  Before the increase it was $28,350, a difference of +$3,726 additional Federal Taxes due  and a new total of taxes due of  $144,759 ($141,033 + $3,726 = $144,759)

 

Now, our Average Tax Rate will be $144,759/$469,515 = 30.08%.  We raised the marginal tax rate on this person by 4.6% percentage points (or 13%), but increased the average tax rate paid by this person by LESS than 1 percentage point! 

 

What IF instead we implemented a policy that effectively decreased this person DEDUCTIONS by 13%, as opposed to increasing the marginal tax rate by that much. What effect would that have?

 

Refer back to the total deductions this person had---$130,481.  Decrease this by 13%, or $16,963, and our total qualified deductions will be $113,518.

 

Now, his/her taxable income will be $486,482 as opposed to $469,515. 

 

As before, all the numbers below $388,515 will stay the same.  We want to tax the amount OVER $388,515 at 35% ($486,482 minus 388,515 = $97,967 X 35% = $34,288).  Compare this to the change in taxes paid at the higher rate of 39.6%---$32,076. A difference of +$2,212. 

 

Our new Average Tax Rate is $146,971/$486,482 = 30.21%. 

 

If we do nothing and the Top Rate stays at 35%,  the 1%-er would pay $141,033 in Federal taxes (30.03% average tax rate).

 

If the Top Rate goes to 39.6% then he/she would pay $144,759 in Federal taxes (30.08% average tax rate).  An increase of $3,726.

 

If we kept the Top Rate at 35% but decrease (cap?) qualified deductions by 13%, then he/she would pay $146,971 in Federal taxes (30.21% average tax rate). An increase of $5,938.  This is 59.4% MORE in tax revenue than raising the marginal tax rate to 39.6%.

 

Seems to me that too much focus is perhaps put on Marginal Tax Rates, especially at the top.  Seems like it would be productive to address loopholes and deductions.  However, that would mean taking on powerful interest/lobbying groups. 

 

On second thought, never mind...

Cinemark stops discriminating for two days! Oh, you did not know they discriminated against you? They do so to the Third Degree. I took a picture to PROVE IT!!

Went to the movies tonight. This sign was on the door.

In this case, discrimination can  work out for you.  Movie theaters are an example used in Microeconomics to illustrate the concept of Price Discrimination.  If a business can segment its customers by their willingness and ability to pay, then it can capture some "consumer surplus". Some consumers will pay the posted market price, but some will pay less, depending on how the business chooses to efficiently segment their customer base.  Some do it through coupons, by age (Senior Citizen OR children under certain ages), or time of day (matinee pricing).

This strategy is worth it to the business because it fills seats that might go empty. People have lots of alternatives on a normal day (leisure or work).

Not so on Christmas Day.  No need to discount on a day that people will be looking to do something soon after the opening of presents. 

Plus after listening to Uncle Leo tell his same stories for the 20th time, you are willing to pay the going price (and more) for a ticket to escape.  Tell me it isn't true.  :)

Tariffs on Sugar-based Ethanol expire and the amount imported increases dramatically. This calls for some graphing and welfare analysis. Who is with me?!?!

There has been a dramatic increase in the importation of Sugar-based ethanol from Brazil since a long-standing tariff on this type of ethanol expired in January 2012.

Imports from Brazil, which distills most of its ethanol from sugar cane, have risen nearly nine fold this year through October, compared with the same period in 2011, according to the U.S. Department of Agriculture. U.S. demand for foreign-made ethanol jumped after an import tariff that had been on the books for three decades expired in January. U.S. ethanol imports are expected to surge again next year, with the vast majority coming from Brazil. ---WSJ

The graphic below shows the percentage increase in the quantity of sugar-based ethanol imported in 2012 from Brazil relative to how much imported in 2011---a 750% increase!

Source: Wall Street Journal

In AP Microeconomics, analyzing the effects of tariffs on social welfare is an important concept.  Let's use this real life example and see what happened in the Market for Sugar Based Ethanol (SBE).

The first graph shows the Domestic Market Price and Quantity in equilibrium BEFORE trade.  We are assuming this economy is a "closed economy" and does not trade (a state of "Autarky").

This second graph shows the World Price of SBE and how it would effect the Domestic market IF it were to open up, or come out of the state of Autarky.  For this lesson, we are assuming the World Price is BELOW the domestic, closed market price but it COULD BE higher. We will save that for another day.

Because "P world" is lower than "P domestic" the quantity supplied by domestic producers decreases to "Qs domestic" (Point "B") BUT at the lower "P world" price the quantity demanded by domestic consumers increases to "Qd domestic" (Point "C").  This is an excellent example illustrating the respective Laws of Demand and Supply--When the price of the good changes (inc or dec) the quantity demanded and/or supplied increases and/or decreases. There is movement ALONG the demand and/or supply curves NOT a shift in either curve! We moved from "A" to "C" along the demand curve and from "A" to "B" on the supply curve.

As it stands right now, Quantity Demanded domestically ("Qd domestic") exceeds Quantity Supplied domestically ("Qs domestic").  If we were to open up to trade, the difference would be made up with imports as shown in this next graph.

Domestic producers would supply a quantity from "0 to Qs domestic" and imports would Qd domestic minus Qs domestic.

Happy people are consumers who get to enjoy more of this good at a lower price--Consumer welfare has increased.  Unhappy people are producers who produce LESS of the good at a lower price-- Producer welfare has decreased. 

Producers will not be pleased about this foreign competition. Producers have A LOT to lose! They will possibly/likely lobby for "something to be done" and that something will probably be the levying of a Tariff on this good through the political process.

As shown in the next graph, assume the amount of the tariff increases the price from "P world" to "P world + tariff" BUT not quite enough to go back to the original equilibrium point "A".

Now, at "P world + tariff"quantity supplied domestically is "Qs 1" and quantity demanded domestically is "Qd 2". 

Domestic producers increase their quantity supplied in response to the higher price (Law of Supply) and Domestic consumers decrease their quantity demanded in response to the higer price (Law of Demand).  Imports are now less than what they were before---Qd 2 minus Qs 1.

Who was helped in this scenario and who was hurt?

First to gain was the Federal treasury in terms of tariff revenue.  To calculate the tariff revenue you would multiply whatever the dollar amount of the tariff is times the quantity of imports--"Qd 2 minus Qs 1".  The RED box shows the area of tariff revenue.

A net loser #1 is the consumer.  They get to enjoy LESS of the good at a HIGHER price than they did before--as the price increases from "C" to "E" the quantity demanded decreased from Qd domestic to Qd 2. The graph below shows consumer welfare loss (Dead Weight Loss) equal to the area of the BLUE triangle.

Net loser #2 is Society as a whole. The "Dead Weight Loss to Society" is represented by GOLD box below.

 Why is this area considered DWL to society and not a gain for producer welfare?

It is because, as a result of the tariff, domestic societal resources are now employed to produce more of this good than otherwise would have been produced absent the tariff.  This is the opportunity cost of the tariff.  Resources are use to make a good that is already available to purchase, albeit produced by a "foreigner".  Economists ask: Could those resources have been used in a more efficient way?

Reason number 10,999 why people hate economists.

This story ends better.  The original focus of was the expiration of the tariff. The result?  Everything snaps back to the graph that shows the domestic economy coming out of Autarky.  Consumer welfare restored, tax revenue to the government gone and reduced producer welfare. 

 Hope this helps understanding the effects of a tariff---when assessed and when rescinded.

"Maple Syrup National Reservoir Dogs"---I hope things end better for these guys..

In $18 Million Theft, Victim Was a Canadian Maple Syrup Cartel

"...On Tuesday, the police in Quebec arrested three men in connection with the theft from the warehouse, which is southwest of Quebec City. The authorities are searching for five others suspected of being involved, and law enforcement agencies in other parts of Canada and the United States are trying to recover some of the stolen syrup..."

Another take-down by me of an important aspect of the "Fiscal Cliff"---Using the Chain-Weighted CPI as opposed to the CPI....Stay Awake!! This is important

One of the latest proposals to rein in the increasing cost of Social Security is to substitute (an appropos word as you will see in a moment) the currently used "Consumer Price Index (CPI)" with a measure called the "Chain-Weighted CPI" (go HERE for an explanation in full of this measure). First, a tiny explanation of the CPI.

The Bureau of Labor Statistics (BLS) measures changes in the price of stuff by pricing a "fixed market basket of goods and services" that are available in the economy. Consider it a shopping list on steriods.  It lists thousands of goods and/or services  that individuals might on a purchase daily, weekly, monthly, or yearly basis. 

The key point with this measure is that it prices ONLY specific, narrowly defined things on "the list" and records the change in price of the good/service with no regard to any change in consumer behavior towards the purchase of that good/service.  If the price of a pound of hamburger increases 10% the CPI will reflect that change---boom, 10% inflation (note--because one good increases in price does not indicate inflation---just keeping it simple for now).

The "Chain-Weighted CPI" is an additional measure that takes into account consumers choices in purchasing a good/service based on "relative prices" and their ability to substitute other less expensive goods/services for the one that increased in price.  If the price of hamburger increased 10% then a price sensitive consumer can subsitute a less expensive chicken or pork or spam (assume the price of these items did not increase in price at all, or something less than 10%). 

In other words, because of the presence of substitutes the consumer may not have lost as much purchasing power as the CPI suggests they did.

When measured over time, the "Chain-Weighted CPI" tends to record a lower level of inflation than does the CPI.  Why is this important?

Congress is required to adjust Social Security benefits every two years and are indexed to (tied to) the inflation rate recorded by the CPI.  If the CPI increases by 5% in the span of two years, then Congress increases Social Security checks by 5%.

However, if they switch and use the Chain-Weighted CPI, it might show that the inflation rate is only, say, 2%.  Checks would increase by only 2% rather than 5%.  A savings of 3 percentage points, which translates into BIG dollars (keep in mind, I TOTALLY made up these numbers for illustration purposes).

The move would save money but here is the biggest criticism.

Both of these market baskets measure items that senior citizens buy and young people dont buy, and vice versa. Young people buy lots of technology and entertainment that have LOTS of subsitutes.  Older people buy lots of healthcare and medicines that don't have lots of viable substitutes.  The Chain-Weighted CPI might be biased IN FAVOR of the choices available to young people in what they buy, but might be biased AGAINST older people in their purchases.

Both of these measures do not take into account the "real life" weight each demographic puts on the the selected goods/services in the measured market basket.  This specific information is not disaggregated from the whole.

This was a very simple explanation and there is MUCH more to it. For more detailed info vist the link to the Chain-Weighted CPI.  GOOD READIN'!!!!