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. Linden Lane
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Uneasy adjustment

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An undergraduate's award-winning paper considers the cost of growing old

In an April ceremony in Washington, D.C., Matthew List '05, an economics major, capped off his years at Boston College by accepting an undergraduate research award from the American Academy of Political and Social Science. He received the award for his paper "Inflation and the Elderly," which argues that Americans over age 65 experience higher inflation rates than younger people, and that the Social Security Administration should consider this distinction when calculating its annual cost-of-living adjustment (COLA).

List's paper was one of only two undergraduate economics papers honored this year by the Philadelphia-based association, which promotes social science research and its applications in public policy. In an e-mail, Robert Pearson, the executive director and a political scientist at the University of Pennsylvania, noted that "reviewers thought that Matt's paper displayed an exemplary grasp of prior research on the topic, used methodology appropriately to answer the question that he posed, and illuminated how public policy might better achieve its ends."

List took a critical look at the Bureau of Labor Statistics' Consumer Price Index (CPI), which serves as the basis for the COLA. In one of his paper's most innovative features, he divided the elderly into two groups, ages 65 through 74, and ages 75 and older. His summary conclusion, reached after many pages of number crunching, was that people ages 65 through 74 experience an additional .17 percent inflation and that people 75 and older experience an additional .31 percent inflation compared to Americans under 65—almost all of it owing to their heavier use of medical goods and services, the costs of which have escalated faster than the overall inflation rate.

Revising the paper for his BA thesis, List continued to probe the CPI and to refine his analysis. He concluded that in significant ways the CPI overstates inflation—it doesn't properly account for that component of higher prices which results not from inflation but from quality improvements in items like computers and automobiles. For purposes of deciding on a COLA for Social Security, List writes, this overstatement outweighs the additional inflation experienced by the elderly. Thus, he now maintains, a modest and gradual reduction in the COLA could help keep Social Security solvent without substantial harm to recipients.

According to Alicia Munnell, Drucker Professor of Management Sciences—who was List's thesis advisor, along with Associate Economics Professor Robert Murphy—List's project takes an approach that hasn't received enough attention from economists. "Little work has been done looking at how different measures of inflation might be relevant for different groups of people," notes Munnell. "But given the importance of Social Security benefits for the elderly, it is crucial that the inflation they face is reflected in the generally reported CPI."

List said he first thought of writing a paper on the CPI during last year's presidential election, when Social Security emerged as an issue. He also was attracted to the topic because the data he needed was readily available in government records. "Someone without a big research staff could write a paper about it and really say something," he explained.

List continues to revise the award-winning paper in hopes of seeing it published in an economics journal. In June he began a research position at Charles River Associates, a Boston consulting firm where he interned as an undergraduate. He is working in the firm's competition division, which provides expert testimony in antitrust legal actions. His future plans include graduate school and a university teaching career.

David Reich


David Reich is a writer based in the Boston area. He last wrote for BCM in Spring 2005, when he reported on the 50th anniversary of the Boston College Citizen Seminars in “Neutral Territory.”

 


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