Style and the CPI

Virginia Postrel has a nice little piece on hotel rooms and the problem of setting up the CPI. I am quite sure that the CPI overestimates inflation, underestimates real wages, and that the gap between the methodologically “correct” CPI and the actually existing CPI is growing at an ever accelerating rate. Before coming to Washington, and getting all interested in policy. I had no idea what a profound impact a bunch of statisticians down at the BLS have on all our lives. These technical methodological matters mean more than most people know. Although she doesn’t come right out and say so (when she writes, “If . . . guests care as much about aesthetics as hoteliers believe they do, it would be irresponsible to treat the $15 as a true price increase,” I think I can hear the antecedent affirmed between the lines”), Virginia’s saying that the CPI just can’t get a grip on increases in value due to “intangibles,” and so overestimates the price of hotels rooms and underestimates the worth of the money in your pocket.

The concluding sentence is nice:

Measuring inflation, [BLS guy] acknowledges, “is more of an art than a science, unfortunately.”

Which is to say, value-laden and contestable.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center