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CPI (was Re: Jerry Hausman)

  Clearly, this debate is polarized and obfuscated by folks furthering
  political objectives.  However, there is considerable evidence that the CPI
  overstates actual inflation to some degree (perhaps not as much as Boskin,
  et al. claim).  The academic literature on index numbers suggests why the
  CPI might overstate or understate actual inflation and recent studies have
  tried to measure these factors.  While not everyone lived in poverty 50
  years ago, generally they consumed less stuff of lower quality (e.g.,
  smaller homes, fewer gadgets, less travel, less health care).  That said,
  Boskin, et al. estimate the current CPI bias; I do not believe that even
  they would argue that the bias was as large in past decades.  One cost of a
  mismeasured CPI is that it contributes to claims such as U.S. living
  standards have declined over the past two or three decades.
  Economists can afford to argue over the extent of the bias.  However, policy
  makers must choose between accepting no CPI bias or a potentially large CPI
  bias.  Between the two, it is not clear to me which is more wrong.  Even if
  a large CPI bias should be rejected, it is important for economists to
  continue to remind policy makers that some bias is likely to exist.
  Incidentally, it is interesting to note that, in the current tax cut debate,
  it looks like adjusting the capital gains tax to account for inflation will
  not survive.  Is there a non-political reason why we have indexed transfer
  payments and income tax schedules for inflation, but not capital gains?
  I hasten to add that none of the above should be construed as a defense of
  Jerry Hausman.
  regards, Mike
  At 07:41 AM 7/1/97 -0700, Michael Perelman wrote:
  >Michael R. Ward wrote:
  >> At the cost of displaying my ignorance, I will ask "What is a flackmiester?"
  >It is a superlative flack.
  >> >                                                           The second
  >> >time had him weighing in on the CPI debate -- on the wrong side.  The
  >> >Economist also covered this last work.
  >> Which is the wrong side and how do we know that?
  >I think that the Boskin group has been shown to be wildly excessive.  If
  >their estimates had been correct and you project back 50 years or so,
  >then virtually everybody in the U.S. was in poverty.  This idea won
  >enthusiasm as a way to cut back the government, not as a way to form
  >more accurate statistics.  After all, data collection has been subject
  >to severe cost reductions over the Regan-Bush-Clinton era.
  >Michael Perelman
  >Economics Department
  >California State University
  >Chico, CA 95929
  >Tel. 916-898-5321
  >E-Mail michael@ecst.csuchico.edu
  Michael R. Ward                                   (217) 244-5667
  Dept. of Ag. and Consumer Econ.                   ward1@uiuc.edu
  University of Illinois          http://www.uiuc.edu/ph/www/ward1