Getting Prices Right: The Debate over the Accuracy of the Consumer Price Index (Economic Policy Institute)

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Summary: The best book on this important issue.
Review: This is a must read for anyone interested in getting prices right. The debate over prices concerns both public policy and pure economic research. The Boskin Commission claimed that the CPI overstates inflation and recommended that measures of inflation be ajdusted to correct for this. This recommendation was quickly embraced by many in the economics profession. It has also had an impact on public policy debate, particularly as regards indexation of social security. The first half of the book presents the Boskin Commission's findings verbatim, and supporters of overstatement are able to speak for themselves. The second half presents Dr. Baker's deconstruction of the Commission's findings. One part of his criticism involves the presentation of technical arguments and instances of CPI understatement. However, the most compelling part is Dr. Baker's reconstruction of recent U.S. economic history using Boskin's implied measure of prices. He shows that 50% of families were apparently living below the 1994 poverty level in 1960. This is implausible. Protagonists of the debate will no doubt continue slinging instances of over- and understatement of prices at each other. However, until supporters of CPI overstatement can explain away Dr. Baker's findings about implied poverty levels, their arguments will ring hollow.