Dave Richardson's recent missive (and an L.A. TIMES column by Robert Kuttner, Dec. 6, 1996) suggests the following: If one wants to measure the cost of living over time, why not divide the nominal consumer spending by the Genuine Progress Indicator, which is supposed to be a measure of the real benefit actually produced by our economy for people. (It's the standard formula for an average price level: money spent/use-value received.) The GPI adjusts real GDP figures for a lot of things such as environmental degradation, etc. My quick calculation shows that the "cost of living inflation rate" was 11.7% in 1993 and 6.6% in 1994, compared to 2.6% and 2.3% for the GDP deflator-based inflation rate. However, there is some correlation between the two inflation rates (the R2 is 0.372 and the t-stat on the regression coefficient is 4.43). (The C-O-L inflation rate was negative in 1966, by the way.) I wouldn't use yearly figures for the C-O-L inflation rate, since it jumps around a lot; moving averages seem appropriate. The two inflation rates are very different. The C-O-L one seems better for discussions of how well people are doing, while the GDP deflation one (and similar) seems better for financial issues. I'm not sure that all of the adjustments in the GPI should be done when calculating the C-O-L. This is a new research topic for me... BTW, Dave is right that the politicians deserve the blame for appointing a bunch of economists that they knew were biased in favor of concluding that the CPI was biased upward. But the economists should be lambasted for willing to accept such a job. It goes against the official canons of academic honesty. We're not supposed to start with out conclusions, right? in pen-l solidarity, Jim Devine [EMAIL PROTECTED] [EMAIL PROTECTED] Econ. Dept., Loyola Marymount Univ. 7900 Loyola Blvd., Los Angeles, CA 90045-8410 USA 310/338-2948 (daytime, during workweek); FAX: 310/338-1950 "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- K. Marx, paraphrasing Dante A.
