The Consumer Price Index and Living Standards

One of the themes that has arisen in the recent Paul Krugman inspired debate on middle class living standards is the possibility that the consumer price index (CPI) misses improvements in the quality of various goods and services, and therefore overstates the true rate of inflation. This would then mean that "real" wages and income have risen more than official data show.

I have spent far more time on this issue than I would have liked. In the mid-nineties there was an effort inspired by Alan Greenspan and spearheaded by the late Senator Daniel Patrick Moynihan to cut Social Security benefits based on this claim.