Historical Comparisons between Various Interest Rates and Growth Rates in the CPI, MCPI, Average Weekly Earnings and Total Compensation in the Employer Cost Index

By Ireland, Thomas R. | Journal of Legal Economics, Spring 2000 | Go to article overview

Historical Comparisons between Various Interest Rates and Growth Rates in the CPI, MCPI, Average Weekly Earnings and Total Compensation in the Employer Cost Index


Ireland, Thomas R., Journal of Legal Economics


Introduction

Forensic economists who calculate damages in personal injury and wrongful death disagree about appropriate discount rates to use for reducing future values to present value and about growth rates that should be used to project increases in wages, fringe benefits, the price level and the medical component of the price level. Those disagreements take two forms. First, there is debate over which interest rates to consider. Some economists advocate use of instruments of very short maturities only, such as the 9 1 day U.S. Treasury bill rate or the six month U.S. Treasury bill rate. Some advocate use of one year or three year notes or 10 year or 30 year U.S. Treasury bonds. Some advocate use of municipal Aaa rates because of their tax-free features. Some advocate use of rates on Treasury inflation indexed securities and some advocate blended rates. Likewise, there is some disagreement about whether to measure changes in earnings by use of the average weekly earnings series or the employer cost index.

The second form of disagreement focuses on the historical periods that should be considered when choosing both a discount rate and an earnings growth rate. This area of disagreement can be further divided into two issues, The first issue is whether the discount rate and earnings and price growth rates should be treated disparately or in the same manner. Some forensic economists argue that growth rates in earnings and prices should be derived from past data, but the discount rate should be based on current market data. Others argue that if past growth rates in earnings and prices are used, discount rates from the same period should also be used. The second issue is what the appropriate period should be if one is using past data for either growth rates or growth rates in earnings and prices. Should it be five years, ten years, twenty years, or some other period? There is indication of the scope of differences that exist in the 1999 survey of members of the National Association of Forensic Economics (Brookshire and Slesnick 1999).

Those issues notwithstanding, the purpose of this paper is not to argue for or against particular interest rates or historical periods (though this author has expressed his views on these matters elsewhere). Rather, the purpose is to provide broad based data to facilitate whatever historical comparisons any given researcher might wish to make between commonly used growth rates and discount rates. It is this writer's hope that the tables provided in this paper, particularly tables 7 and 8, will enable good forensic economists to quickly disprove factually inaccurate calculations they may confront when looking at the reports of other forensic economists. The rate comparisons provided in this paper include the 91 day Treasury bill rate, the 3 year Treasury note rate, the 10 year Treasury bond rate, the 30 year Treasury bond rate, the muni Aaa rate, the corporate Aaa rate compared with rates of growth in the consumer price index (CPI), the medical component of the consumer price index (MCPI), average weekly earnings, and the total compensation series in the employer cost index (ECI).

For convenience, all data in this paper are taken from the Economic Report of the President: 2000 (Council of Economic Advisors 2000). That convenience imposed limits on the length of the historical periods that could be considered. Table B-71 provides annual values for most of the interest rates back to 1953, allowing for 47 years of comparisons. The only exception is the 30 year U.S. Treasury bond, which only began to be issued in 1977, allowing for 23 years of comparisons. Rates of increase in the CPI and MCPI are taken from table B-3. Data in that table goes back to 1940, but only figures after 1953 were used, based on availability of discount rates from table B-71. Data for the Average Weekly Earnings series in table B-45 starts in 1959, which imposes a 4 1 year limit. Data for the ECI total compensation series is reported only after 1980, imposing a 20 year limit. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Historical Comparisons between Various Interest Rates and Growth Rates in the CPI, MCPI, Average Weekly Earnings and Total Compensation in the Employer Cost Index
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.