[OnlineGladiator]

> One of the conclusions was (AIUI) that the CPI then-methodology actually resulted in numbers too high.

How is this any different from saying they changed the methodology to make the numbers look better? In my opinion the old methodology was better, but I realize this is a complex issue and there is no "correct" answer.

[baronswindle]

The way I read it, it’s actually the opposite of what you wrote. You suggested that the Fed relied on inflation numbers that it knew to be too low — i.e. that inflation was understated due to failure to account for substitution effects and the like. In fact, the Boskin commission concluded the opposite — i.e. that inflation figures were overstated in aggregate due to failure to account for things like quality changes and the substitution effect.

[tsimionescu]

No, they suggested it now relies on inflation numbers that it knows to be too low. They said that inflation numbers used to be more realistic, but they have recently been lower than real inflation that consumers experience.

[throw0101c]

> How is this any different from saying they changed the methodology to make the numbers look better?

Define "better": is a higher CPI better, or is a lower CPI better?

Because the Boskin Commission found that the CPI numbers out of the BLS were too high and they changed the methodology to lower them after the Commission's report. Pre-Boskin CPI was being overstated.

[OnlineGladiator]

A lower CPI is better for the government because it makes it look like inflation is a smaller problem than it is. So you're agreeing with me - they changed it to make the numbers look better.

[mrep]

You didn't answer their question: Define "better": is a higher CPI better, or is a lower CPI better?

Why is a lower CPI better for the government?

In what way does the CPI calculation translate to a "problem" and why does lower CPI = "smaller problem"?

[OnlineGladiator]

I did answer the question - I said a lower CPI is better for the government because it makes it look like inflation isn't as bad as it is. Do you think it's better to report 5% inflation or 10% inflation? Regardless of what you report, the inflation is what it is. Modern politics is about pretending to solve problems, not actually solving them.

[mrep]

> I said a lower CPI is better for the government because it makes it look like inflation isn't as bad as it is.

Let me guess, you think anything other than 0% inflation is "bad"?

[OnlineGladiator]

You sure are presumptuous. I don't think 0% is ideal. But for most of my life the US government has had an incentive to say inflation is lower than it is. And their methodology reflects their bias.

You really think it's a coincidence when inflation is peaking they change the formula and it just happens to be lower?

[throw0101c]

> […] they changed it to make the numbers look better.

They changed the number because the number was not modelling reality as accurately as it could have.

Perhaps actually read the Boskin Report:

> 5. Changes in the CPI have substantially overstated the actual rate of price inflation, by about 1.3 percentage points per annum prior to 1996 (the extra 0.2 percentage point is due to a problem called formula bias inadvertently introduced in 1978 and fixed this year). It is likely that a large bias also occurred looking back over at least the last couple of decades.

> 6. The upward bias creates in the federal budget an annual automatic real increase in indexed benefits and a real tax cut. CBO estimates that if the change in the CPI overstated the change in the cost of living by an average of 1.1 percentage points per year over the next decade, this bias would contribute about $148 billion to the deficit in 2006 and $691 billion to the national debt by then. The bias alone would be the fourth largest federal program, after social security, health care and defense. By 2008, these totals reach $202 billion and $1.07 trillion, respectively.

> 7. Some have suggested that different groups in the population are likely to experience faster or slower growth in their cost of living than recorded by changes in the CPI. We find no compelling evidence of this to date (in fact just the opposite) but further exploration of this issue is desirable.

* https://www.ssa.gov/history/reports/boskinrpt.html

* https://en.wikipedia.org/wiki/Boskin_Commission

Feel free to point out any errors in the methodology and logic that they used.

Here's a paper from 2006 to get you started:

> This paper provides a retrospective on the 1996 Boskin Commission Report, Toward a More Accurate Measure of the Cost of Living, and its famous estimate that the CPI in 1995-96 was upward biased by 1.1 percent per year. The paper summarizes the report's methods, findings, and recommendations, and then reviews the criticisms that appeared soon after the Report was issued. Post-Boskin changes in the CPI are summarized and assessed, as is recent research on related issues. The paper sharply distinguishes two questions. First, with what we know now, what should the Commission have concluded about CPI bias in 1995-96? Second, what is the bias now after the many improvements introduced into the CPI since the Commission's Report?

> About the first question, my own recent research on apparel and rental housing indicates a substantial downward bias in the CPI over much of the twentieth century, diminishing in size after 1985. Incorporating these findings into the Boskin matrix would reduce its 0.6 percent annual upward bias due to quality change and new products to a smaller 0.4 percent bias. However, this is more than offset by the stunning discrepancy over 2000-06 in the chain-weighted C-CPI-U compared to the traditional CPI-U, indicating that the Commission greatly understated the magnitude of upper-level substitution bias. This retrospective evaluation suggests that the Boskin bias estimate for 1995-96 should have been 1.2 to 1.3 percent, not 1.1 percent.

> Current upward bias in the CPI is estimated to have declined from the revised 1.2-1.3 percent in the Boskin era to about 0.8 percent today. Yet the Boskin report, like most contemporary studies of quality change, failed to place sufficient value on the value of new products and on increased longevity. Allowing for these, today's bias is at least 1.0 percent per year or perhaps even higher.

* https://www.nber.org/papers/w12311