The Vague Meaning of the CPI

Dean BakerThe final issue has to do with the meaning of a cost of living index. The underlying idea is that we are supposed to have enough money to buy a basket of quality adjusted goods and services over time that will leave us equally well off through time. An explicit assumption is that the physical and natural infrastructure have not changed. This is seriously problematic.

It means, for example, that in 2015 we would be able to buy the same phone and television as we did in 1979 and we would be as well off. There is no provision for the cost of buying a cell phone and paying for the service, nor the cost of the internet. We are supposed to believe that a person would be as well off without internet access in 2015 as they were in 1979. That doesn’t seem very plausible.

—Dean Baker
Quick Thoughts on Wage Stagnation

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