Newspaper article St Louis Post-Dispatch (MO)

Wrong Way to Fix the CPI

Newspaper article St Louis Post-Dispatch (MO)

Wrong Way to Fix the CPI

Article excerpt

The Congressional Advisory Commission on the Consumer Price Index, headed by Michael Boskin, one-time economic adviser to the then-President George Bush, has issued its final report. It is significantly flawed.

The report concludes that the Consumer Price Index seriously overstates inflation -- by a whopping 1.1 percentage point a year. If the CPI were adjusted accordingly, the government would collect more taxes while cost-of-living adjustments for entitlement programs like Social Security would be trimmed, sending the deficit down by some $133 billion over five years. However, the Boskin numbers -- and the analysis behind them -- aren't valid.

True, all agree the CPI overstates inflation, but no one knows by how much. The answer lies in a wealth of technical changes that require years of trial to perfect. That's the job of the Bureau of Labor Statistics, and experts there are working on it. Next year the bureau will publish and experimental price index that tries to capture consumers' tendency to cut purchases of items that have risen in price in favor to less expensive alternatives. The Boskin commission thinks that such changes in buying habits mean the cost of living isn't rising as much as reported. Possibly. But if the average family can afford only chicken instead of beef, does that mean inflation is being overstated? Hardly. Another of the CPI's problems is the difficulty of measuring improvements in quality. The commission believes that if a product's quality has doubled while its price has also, no price increase has occurred. But judging quality is tough, and if lower quality alternatives no longer exist, the ability of consumers to obtain a given product at all may require more income. Again, that's hardly a case for arguing that inflation is being overstated. Finally, there's the difficulty of deciding which products and services to sample and how often. …

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