[Congressional Record Volume 143, Number 90 (Tuesday, June 24, 1997)]
[House]
[Page H4226]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               HOW RELIABLE IS THE CONSUMER PRICE INDEX?

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 21, 1997, the gentleman from Florida [Mr. Stearns] is 
recognized during morning hour debates for 5 minutes.
  Mr. STEARNS. Mr. Speaker, I rise today to talk about something that 
has received a great deal of attention today, and that is the consumer 
price index, or CPI. Basically, what I am doing today is calling for a 
hearing here in Congress so that we may better understand it.
  The CPI is known to most Americans as the most notable measure of 
inflation. A number of Federal Government programs are regularly 
adjusted to account for changes in the CPI, including the Social 
Security, veterans' benefits, Federal retirements, and the income tax 
rate schedule. The CPI is also employed in the private sector as a 
price or lease escalator.
  Unfortunately, the CPI, which has so many important consequences for 
all Americans, is also greatly misunderstood. Most Americans do not 
know what the CPI stands for, much less how it is calculated and what 
its consequences are.
  As a matter of brief instruction, the CPI is a Bureau of Labor 
Statistics measure of inflation. Established by the BLS in 1913, the 
CPI is based on a number of sample surveys. The surveys estimate the 
purchasing power and patterns of typical households, the shopping 
patterns, the prices on goods and services purchased by these 
households. In short, it is a Labor Department check on 71,000 
different items at 22,000 different retail outlets.
  Because of its enormous base and its political neutrality, the CPI 
has always been considered reliable. As a result, the CPI permeates 
every aspect of our daily lives and is embedded in nearly every 
essential Federal budgetary matter. It is estimated that changes in the 
CPI affect the incomes of over 70 million Americans.
  Mr. Speaker, given this far-reaching effect, consensus over the 
accuracy of the CPI results in inevitable turmoil. All of a sudden 
Americans are either richer or poorer, benefits are either overstated 
or understated, income taxes are maladjusted, the poverty line is 
incorrect, and on and on and on.
  Such a scenario is not only confusing but troubling. Unfortunately, 
such is the current climate. Last year the celebrated Boskin Advisory 
Commission issued a Senate-ordered report that estimated the CPI 
overestimates inflation by 1.1 percent per year. Instantly, Americans 
are wealthier, taxes are too low, the economy has been growing faster 
than we thought, and the budgetary world is just a little bit rosier.
  Or is it, Mr. Speaker?
  Certainly, the CPI is not perfect. How can the commission measure 
inflation without an error? The answer is simple. They cannot. It is 
generally understood that the CPI is not perfect, that it does, in 
fact, overstate inflation to some degree. Nevertheless, it is foolish 
to assume that the error is fixed at 1.1 percent. Probably it is much 
lower some years; much higher in other years.
  The CPI is a complex measure of the real rate of inflation. As such, 
it is not an accurate cost-of-living measure. Put simply, the CPI is 
not subjective, while the cost or benefit of living is.
  Economists cannot put a price or a cost on quality-of-life issues. 
For example, it is obvious that medical care is more expensive than it 
was 30 years ago, but it is also better. Diseases are better understood 
and easier to diagnose. Surgery is less dangerous and we simply live 
longer and healthier lives. So while the costs may have increased, so 
did the benefits or goods.
  In simple terms many of the goods, although the same in theory, are 
truly quite different; a comparison of apples to oranges.
  This is just one of a number of apparent blind spots on the CPI, 
blind spots that are recognized by everyone including the Boskin 
Commission. So while the Boskin report certainly recognizes 
deficiencies of the CPI, it also notes the folly in attempting to put 
an exact figure in the change in the cost and quality of living. Those 
who point to the report as evidence of a need to adjust the CPI are 
quick to point to the CPI's admitted deficiencies, but are slow to 
point out that the discrepancy is inherently subjective and impossible 
to calculate.
  Lawrence Katz, a Harvard University economist and the former top 
economist at the Labor Department, warns against quick adjustments in 
either direction. He warns that it is ``logically inconceivable'' that 
the bias has been a consistent 1.1 percent for an extended period of 
time. In other words, inflation and the standard of living are going up 
but not at the same rate and not even at the same pace.
  To say the least, we should be very careful about what we are doing. 
It would be far better for our country if we were to return the debate 
surrounding CPI revision to the economists and to the universities 
where it belongs. Congress should instead address the real problems 
that face our Nation by balancing the budget and paying off the 
national debt.
  Nevertheless, Mr. Speaker, I urge my colleagues to consider and to 
study the CPI in great depth and, Mr. Speaker, I call for a hearing 
here in Congress so that the American people can better understand the 
experts.

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