David Leonhardt took advantage of the fact that I was busy to slip in a column assessing the claims that the CPI is seriously understating inflation. Actually he does a pretty good job, but he does glaze over part of the story. Leonhardt makes reference to the infamous "Boskin Commission," which appears in his piece as a "committee of academic economists." Actually, this commission was put together by the Senate Finance Committee (under the guidance of Senator Daniel Patrick Moynihan), for the purpose of getting expert support for cutting the annual cost of living adjustment for Social Security. The commission was chaired by Michael Boskin, who had been chair of the Council of Economic Advisers until Bush I. All of the five members of the commission were publicly on record as saying the CPI substantially overstated the true rate of inflation. The commission's magic number at the end of its deliberations was 1.1, as in the CPI overstated the true rate of inflation by 1.1 percentage points annually. They proposed that Congress set up a committee of wise people (like themselves) who would decide the proper inflation number to index Social Security and other government programs. Because the members of the commission were all very prominent economists, and they enlisted the support of several other very prominent economists (Martin Feldstein deserves special mention here), the overstatement view was regarded as the consensus in the profession. The Clinton administration signed onto the deal, and the cut likely would have been implemented had it not been for the opposition of the House minority leader Richard Gephardt. (Think Gephardt-Gore and Democratic presidential primaries in 2000 and you have the story.) Anyhow, it is very encouraging to Stephen Cecchitti, an expert cited in the story, say that the CPI is "about as accurate as anybody is going to get it." The vast majority of the overstatements identified by the Boskin Commission were not corrected. By the assessment of the commission's surviving members the CPI still overstates the true rate of inflation by 0.8 percentage points. So, it looks like the Boskin commission was wrong after all. So much for expertise in economics.
--Dean Baker
