Letters

From the May 1997 issue

Confusing Price Index

Virginia Postrel ("Priced to Move,"February) makes a good case against the consumer price index but omits the obvious conclusions: Ditch the CPI and close the Bureau of Labor Statistics. Like most government agencies, the BLS is not just wasted money: It is a public- choice headache. A wise governor of Hong Kong blocked official collection of economic statistics lest he be pressured to do something about them. We can learn from him.

Roberto Alazar
Irvine, CA

Normally I reconsider my position whenever I disagree with Virginia Postrel on the subject of libertarianism. On the subject of the consumer price index, reconsidering my position is not working. I suspect that the purpose of the CPI was never to make everybody feel good by showing how technology can improve the quality of life. If it's to make any sense, the CPI market basket must be confined to items fundamental to living that have not changed. If an item has changed, we should be on guard both for indications that the quality of life has fallen and for effects of technology that must be discounted.

For example, choosing to rent a movie on videotape because theater crowds have become rowdy and the car is no longer safe in the parking lot suggests that we're worse off, as you may have meant to imply. Being able to buy a movie and watch it at any time, a luxury unavailable to kings centuries ago, is a benefit of technology and has nothing to do with prices. Substituting a phony synthetic breakfast drink for fresh orange juice may reduce the quality of life, while a lower price for fresh oranges may represent only a benefit from better transportation technology.

Government propaganda is certainly not likely to provide insight; their suggestion that people will cheerfully buy less-desirable foods and from a discount store reveals only their effrontery.

William J. Roberts

The thrust of Virginia Postrel's February editorial, "Priced to Move,"and of your December 1995 article "The Good Old Days Are Now"is that we are all better off than we were 10 years ago.

Are we? Ten years ago I lived in a large modern house on a large lot in a nice neighborhood. Today I live in a small old house on a tiny lot in an old neighborhood. What does it avail me that new cars are better than 10 years ago? I drive a 12-year-old car and see no prospect that I will ever again be able to buy a new car. I do not have air conditioning or a VCR or a cell phone. My TV is dying, and when it goes, I will not replace it. I cannot afford restaurants or movies, much less an airline ticket to anywhere. I do have a computer, this being a necessity for writing résumés and cover letters, having been laid off for the second time in five years. This is my reward for having invested years of hard work earning a Ph.D. in engineering.

I suggest that REASON's readers would be better served if you stopped printing these pieces by rich people who only talk to other rich people and get a writer who actually has some contact with common people.

James W. Austin
Bellevue, NE

Virginia Postrel replies: Mr. Alazar and Mr. Roberts both point to fundamental problems in computing a cost-of-living index--the temptation to political shenanigans and the difficulty of comparing today's apples with yesterday's oranges. Although Mr. Alazar's prescription that the government collect no economic data might have some positive effects in such areas as trade statistics, where the existence of the statistics creates the issue, I'm quite sure that private researchers in both academia and business would still be interested in the questions the CPI attempts to answer. Indeed, far from being easily dismissed "government propaganda,"the Boskin report represents a consensus of privately employed economists who have worked in this area over decades when lawmakers had no particular interest in the subject. They will continue to research and publish regardless of whether any legal changes are forthcoming, because they are interested in fundamental questions about the relations between prices and living standards.

In this regard, some of the most interesting and provocative work has been done by economist Robert J. Gordon of Northwestern University using not government data but a century of Sears catalogs. Gordon's work suggests quite convincingly that living standards have risen dramatically. If given, say, $1,000 to spend at list price on goods from the Sears catalog, most people would choose to spend only the first few hundred on standard, unimproved goods even when offered old-fashioned prices. The rest they would spend on today's goods at today's prices.

Mr. Austin's letter represents a common fallacy. He not only generalizes a nationwide trend from a single data point--his own experience--but also confuses economic turbulence with declining living standards. No one, least of all me, claims that the economy is calm and stagnant. The changes that produce progress also create disruptions, as once-dominant businesses fade and once-valued skills become less so while other businesses and skills rise. That means trouble even for some well-credentialed people, especially if they live in areas like Nebraska where the population is rapidly draining away. But Mr. Austin is hardly the first engineer ever to lose a job--my own father and father-in-law both had that experience back in the good old 1970s--nor is he the first Ph.D. to find that the market values things other than how many years one spent in school. (All investments have risks, and I have the "upside-down"home mortgage to prove it.) Finally, as someone who drives an 11-year-old car, I'm very glad it was made in 1986, not 1976; quality standards improved dramatically.

Thugs, Not Drugs

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