Bread & circuses.

JUST as November's deadline approaches and tough budget proposals must be enacted, look for hundreds of billions of dollars to be suddenly available to make the job easier. Call it Moynihan ex machina.

New York's Senator Daniel Patrick Moynihan sits on the Finance Committee, where he recently called his colleagues' attention to a means by which the deficit could be reduced by $634 billion over the next 10 years. Moynihan's Republican colleagues listened longingly (Senator Dole appeared to be particularly wistful), then swallowed hard and voted instead to reduce spending on Medicare and Medicaid by $450 billion. But they will have plenty of time to rethink their position before the bills emerge from conference, and Senator Moynihan will do his best to persuade them.

His pot of gold is the Consumer Price Index (CPI). He points out that it grossly overstates increases in the cost of living, thus skewing cost-of-living adjustments (COLAs). Specifically, benefits for Social Security recipients, federal retirees, and veterans have risen steadily because of CPI-based COLAs. Since the 1980s, the CPI has also been used as the basis for adjusting tax brackets.

There are good arguments in favor of protecting pensioners and taxpayers from the effects of inflation (heaven knows conservatives, most prominently Ronald Reagan, argued against unlegislated tax increases through "bracket creep"), but the index Congress chose for its COLAs is wildly misleading. The CPI doesn't measure the cost of living, but rather consumer prices for a fixed marketbasket of goods and services. The index doesn't account for substitution of goods by buyers when the price of certain items increases, and it makes no allowances for discount shopping. Most critically, the CPI doesn't account for the introduction of new products with much higher utility-to-cost ratios. The introduction of completely new products is now the central focus of economic growth, rather than the more efficient production of the same old goods. If a pill came on the market tomorrow that cured cancer and cost a dollar, the purchasing power of a dollar of medical care would have changed dramatically. Yet the CPI would ignore this, even as it ignored the effects of the polio vaccine.

Economists are in rare agreement that the CPI is wrong; their estimates on how much it overstates inflation vary from about 0.7 per cent to as much as 2 per cent. According to the interim report of an expert panel reviewing the CPI, the "best estimate" is that the index is too high by a full point.

What a difference a point can make! If Congress adopted a more accurate cost-of-living adjustment -- i.e., one based on CPI minus a point -- the Republicans could balance the budget without touching Medicare, and have enough left over for a dozen new B-2s. A downward adjustment in the CPI would mean hundreds of billions of dollars newly available in the federal budget -- roughly a third from increased revenues, the rest in program savings -- and would spread the effects across virtually the entire population.

Senator Moynihan provides one example: "Seniors may have already received some $300 billion in extra pension payments owing to the CPI upward bias." Seniors? Ah, there's the rub. The effect of a CPI adjustment on Social Security is what makes Republicans quake despite the clear need for a correction.

Senator Moynihan provides some political cover on the "messing with Social Security" charge: "[W]e would not be cutting anything, just getting accurate data by which to conform to the law." But so far, though sorely tempted behind closed doors, his Republican colleagues have been too afraid of giving the Democrats an issue that they can demagogue to endorse any CPI change.

Senator Moynihan himself, of course, is not offering entirely disinterested help to the new Senate majority. He has been helplessly watching as welfare and Medicaid entitlements headed toward repeal and funding for New York's teaching hospitals toward reduction. The ingenious solution of correcting the CPI might allow his favorite programs to be protected -- something that would appeal to the White House as well.

HOUSE Republicans might support the adjustment, but with a different intent altogether. Freshman Mark Neumann of Wisconsin, who serves on the House Budget Committee, says: "As a former math teacher, it seems to me that if the CPI is wrong and is corrected, it is a technical correction that doesn't either raise taxes or reduce benefits." Neumann would consider supporting the adjustment, but adds, "If it's an excuse to waste more money, it's not OK." Neumann realizes that even if the White House comes out in favor of a CPI change -- as Senator Moynihan is urging it to do -- House Democrats can be expected to ignore President Clinton's position and rant about Republicans cutting Social Security benefits.

What House Republicans should do is use the extra moneys to fund the Contract with America's original $353-billion tax-cut package. Senate Republicans, arguing that it would be irresponsible to reduce taxes until the deficit is under control, passed only $170 billion in tax cuts, and finally compromised with the House on a $270-billion package. A CPI fix would eliminate both the deficit and the Senate's alibi on taxes.

In gratitude, meanwhile, for Senator Moynihan's ingenious solution, Republicans should perhaps find a little extra money for his New York teaching hospitals. It's the least they could do.