Jason Furman Weighs in

He writes:

1. I agree with Jared that the 30-year debate is a distraction. Worse than that, it lets Bush off the hook by making the last six years look like a continuation of a long-standing trend rather than something peculiarly bad. This was the point I tried to make in my TAP posting.
2. I've never had a problem in the past making arguments about growing inequality and the minority of the gains going to the bottom 80 percent of Americans. I don't see why we need to make a levels argument to communicate this essentially relative point.
3. I agree with Dean that we're far from certain about the magnitude or meaning of new goods bias, variety bias, outlet substitution bias, or quality bias.
4. But I'm quite certain about upper-level substitution bias in the CPI. And unless someone tells me otherwise, I assume 0.34 percentage point per year is a reasonable estimate for it -- based on the first five years of the C-CPI-U. If we had a backcasted version of this we should all use it for intertemporal comparisons.

Comments

[spencer]

could you tell us about the c-cpi-u ?

[spencer]

In 1999 Gorden wrote about the Boskin Commission and it aftermath. He said:

By now the Commission's conclusion that the U. S. Consumer Price Index (CPI) overstated inflation by 1.1 percent per year in
1995-96 has become familiar both within the United States and in the measurement community of other countries. Since the report was issued, the Bureau of Labor Statistics (BLS) has moved rapidly
to implement some of the most important of the Commission's recommendations, so that the upward bias in the CPI is substantially less today than in 1996.

The BLS has constructed a new cpi series (cpi-rs) that reconstructs the history of the cpi to show what it would have been if these recommendation had been used in the past. The cpi-rs shows that annual inflation was about 0.5 percentage points
lower then the regular cpi(cpi-u).

Census now uses the cpi-rs to deflate the nominal income and it was used to deflate the census data in the article.

But now Gorden says the cpi still overstates inflation by about one percentage point annually. Moreover, if you work out the numbers in the chart it obviously shows that he used an inflation rate that is about 1 percent higher then the cpi-rs, or rougly 1.5 percentage points higher then the cpi-u.

So which is right, Gorden in 1999 when he says that BLS had implemented the Commission recommendations that signficantly reduced the upward bias in the CPI, or Gorden, now when he seems to imply that the cpi-u is now biased upward by 1.5 percentage points?

[save_the_rustbelt]

I want a snow blower, a cell phone, and a free pony.

[Insights]

Nearly 10% of all African American men ages 25 to 29 are in prison. The U.S has one of the highest incarceration rates in the world. Over 2 million people are currently behind bars in the U.S..

Have you seen the state of public schools in Baltimore, D.C., Cleveland, Philadelphia, New York or even inner-city Lincoln, Nebraska?

The U.S. infant mortality rate ranks down there with Croatia and Cuba.

Each month Americans roll an average of $10,000 in credit card debt at 17% interest.

The U.S. National Debt is over $8 trillion dollars.

40 million Americans have no health insurance whatsoever.

2,691 U.S. Dead in Iraq
20,000 U.S. Wounded in Iraq

George Bush is advocating changes to the Geneva Convention Article on torture.

[Denis Drew]

The 30 year debate is a distraction? If you are in a race and have been falling behind for 30 times as long as some standard increment you will have fallen 30 times further back -- which means a heck of a huge loss in terms of average earnings. Also, if a nation's economy has been pumping disproportionate gains to the top one percentile for 30 years (!) instead of only a few years that means that misdistribution can be certainly inferred to be the normal structure of that economy -- certainly requiring some restructuring. A few bad years would not necessarily require anything very drastic.

Everyone knows about the frog that would not jump out of water as it was gradually brought to a boil: that's American labor for many decades. If we could somehow have predicted to Americans of 1968 that, by 2006, 25% of the labor force would be earning less than L.B.J.'s minimum wage they would have expected a small nuclear war or a series of depression to have to account for such a "wild improbability". American labor has to be told where it has been if it is to understand where it ended up -- so it can understand the desperate need to jump out of the deunionization pot.

[a different chris]

>If we had a backcasted version of this we should all use it for intertemporal comparisons.

I so want to use that sentence at our next project milestones bloodba.... er, meeting.

[gonzago]

The reason the 30-year time period is key is that it was about 30 years ago that the US was persuaded to drop the economic policies it had followed in the post-war period and go down the conservative path. And 30 years is long enough to see past the business-cycle static and determine whether or not the conservative plan is working as promised, which we now can see it clearly isn't.

Of course, conservatives being fanatical ideologues, their view of things is impervious to empirical disconfirmation, and so they insist things are going just splendidly, in spite of the overwhelming evidence to the contrary.