Getting Prices Right: Debate Over the

Compiled by the Bureau of Labor Statistics, the CPI is used to index Social Security payments and many other federal programs, as well as to adjust tax brackets. Today, the accuracy of the CPI is being hotly debated, particularly in light of the Boskin Commission report that concluded in December 1996 that the CPI overstates inflation by 1.1%. If accepted and applied in the formulation of economic policy, the report would have major implications for balancing the federal budget. It would have a direct impact on the lives of Americans who are beneficiaries of government programs as well as on everyone who pays taxes. In this book, Dean Baker introduces and explains the significance of the debate, presents the full text of the Boskin Commission report and finally discusses in a far-reaching and insightful analysis both the Commission's research methodology and its conclusions.

ACKNOWLEDGMENTS

IX

INTRODUCTION

1

(4)

Dean Baker

PART 1 TOWARD A MORE ACCURATE MEASURE OF THE COST OF LIVING

5

(74)

Michael J. Boskin

Ellen R. Dulberger

Robert J. Gordon

Zvi Griliches

Dale Jorgensen

Executive Summary

7

(4)

I. Introduction

11

(3)

II. Indexing the Federal Budget

14

(3)

III. How the CPI Is Constructed

17

(5)

IV. The Consumer Price Index and a Cost of Living Index

22

(7)

V. Quality Change and New Products

29

(21)

VI. Estimates of Biases by Type and in Total

50

(5)

VII. Other Issues

55

(4)

VIII. The Commission's Recommendations

59

(6)

IX. Conclusion

65

(14)

Endnotes

67

(5)

References

72

(4)

Appendix: Figures

76

(1)

List of Commission Members

77

(2)

PART 2 DOES THE CPI OVERSTATE INFLATION? AN ANALYSIS OF THE BOSKIN COMMISSION REPORT

79

(78)

Dean Baker

I. The Implications of the Boskin Commission's Conclusions

82

(13)

II. The Evidence for an Overstated CPI

95

(30)

III. Is Inflation the Same for Everyone?

125

(6)

IV. The CPI and a Cost-of-Living Index Compared

131

(9)

V. Conclusion: Is the CPI the Best Measure of Consumer Inflation?

140

(2)

Endnotes

142

(6)

Appendix A: The Record on Adjusting for CPI Bias in Research by Commission Members

148

(4)

Appendix B: Examples of New Car Reliability/Durability Quality Adjustments in the CPI Since 1992

152

(1)

References

153

(4)

PART 3 ADDITIONAL VIEWS ON THE ACCURACY OF THE CONSUMER PRICE INDEX

157

(18)

Katharine G. Abraham

159

(6)

Barry P. Bosworth

165

(6)

Martin Feldstein

171

(4)

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Getting Prices Right: Debate Over the Consumer Price Index: Debate Over the Consumer Price Index

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