RE: Re: new cpi

["Devine, James" <jdevine@xxxxxxx>]

Michael Perelman writes:
>I had not heard about the new cpi method that is about to be used.  I
just saw the notice in yesterday's WSJ.  Has this been totally off the radar
screen?<

Doug writes:
It's been clear for a long time that the BLS has largely gone along
with the Boskin stuff, despite protestations of independence.
Incrementally, in technical changes. They're getting there, just a
few adjustments more. They probably have to, because Congress wants
it, and Congress sets their budget.

Conceptually the new technique is supposed to compensate for
substitution. But if you love Washington merlot but its price goes up
by 25% so you switch to Budweiser, aren't you suffering a loss of
welfare? Why should a price index write that out?

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there's a lot of potential here: the price of Prozac goes up so you
substitute booze for it. Obviously, there's no loss of welfare, so the CPI
should write that out, too.
JD