Boskin Commission
Encyclopedia
The Boskin Commission, formally called the "Advisory Commission to Study the Consumer Price Index", was appointed by the United States Senate
in 1995 to study possible bias in the computation of the Consumer Price Index
(CPI), which is used to measure inflation
in the United States. Its final report, titled "Toward A More Accurate Measure Of The Cost Of Living" and issued on December 4, 1996, concluded that the CPI overstated inflation by about 1.1 percentage points per year in 1996 and about 1.3 percentage points prior to 1996.
The report was important because inflation, as calculated by the Bureau of Labor Statistics
, is used to index
the annual payment increases in Social Security
and other retirement and compensation programs. This implied that the federal budget had increased by more than it should have, and that projections of future budget deficits were too large. The original report calculated that the overstatement of inflation would add $148 billion to the deficit and $691 billion to the national debt by 2006.
The report highlighted four sources of possible bias:
The members of the Boskin Commission were:
The Boskin Commission was the first extensive evaluation of inflation measurement since the Stigler Commission
in 1961. Griliches was also on that commission.
United States Senate
The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...
in 1995 to study possible bias in the computation of the Consumer Price Index
Consumer price index
A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...
(CPI), which is used to measure inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
in the United States. Its final report, titled "Toward A More Accurate Measure Of The Cost Of Living" and issued on December 4, 1996, concluded that the CPI overstated inflation by about 1.1 percentage points per year in 1996 and about 1.3 percentage points prior to 1996.
The report was important because inflation, as calculated by the Bureau of Labor Statistics
Bureau of Labor Statistics
The Bureau of Labor Statistics is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics. The BLS is a governmental statistical agency that collects, processes, analyzes, and...
, is used to index
Index (economics)
In economics and finance, an index is a statistical measure of changes in a representative group of individual data points. These data may be derived from any number of sources, including company performance, prices, productivity, and employment. Economic indices track economic health from...
the annual payment increases in Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...
and other retirement and compensation programs. This implied that the federal budget had increased by more than it should have, and that projections of future budget deficits were too large. The original report calculated that the overstatement of inflation would add $148 billion to the deficit and $691 billion to the national debt by 2006.
The report highlighted four sources of possible bias:
- Substitution bias occurs because a fixed market basket fails to reflect the fact that consumers substitute relatively less for more expensive goods when relative priceRelative priceA relative price is the price of a commodity such as a good or service in terms of another; i.e., the ratio of two prices. A relative price may be expressed in terms of a ratio between any two prices or the ratio between the price of one particular good and a weighted average of all other goods...
s change. - Outlet substitution bias occurs when shifts to lower price outlets are not properly handled.
- Quality change bias occurs when improvements in the quality of products, such as greater energy efficiency or less need for repair, are measured inaccurately or not at all.
- New product bias occurs when new products are not introduced in the market basket, or included only with a long lag.
The members of the Boskin Commission were:
- Michael BoskinMichael BoskinMichael Jay Boskin is the T. M. Friedman Professor of Economics and senior fellow at Stanford University's Hoover Institution. He also is Chief Executive Officer and President of Boskin & Co., an economic consulting company.Boskin holds B.A. with highest honors, M.A., and Ph.D...
, Stanford University (Chair) - Ellen R. Dulberger
- Robert J. GordonRobert J. GordonRobert James "Bob" Gordon is an American economist. He is the Stanley G. Harris Professor of the Social Sciences at Northwestern University. He is known for his work on productivity, growth, the causes of unemployment, and airline economics.-Education:...
- Zvi GrilichesZvi GrilichesHirsh Zvi Griliches was an economist at Harvard University. He was born in Kaunas, Lithuania in an assimilated Jewish family that spoke Russian at home. During World War II he was sent to the Dachau concentration camp...
- Dale Jorgenson
The Boskin Commission was the first extensive evaluation of inflation measurement since the Stigler Commission
Stigler Commission
Formally known as the Price Statistics Review Committee, the Stigler Commission was convened in 1961 to study the measurement of inflation in the United States. Headed by Nobel Prize winner George Stigler, its mandate was to conduct research into all types of price indices, including the Consumer...
in 1961. Griliches was also on that commission.
External links
- The Boskin Report
- http://faculty-web.at.northwestern.edu/economics/gordon/346.html"The Boskin Commission Report and its Aftermath", an article written by Robert J. GordonRobert J. GordonRobert James "Bob" Gordon is an American economist. He is the Stanley G. Harris Professor of the Social Sciences at Northwestern University. He is known for his work on productivity, growth, the causes of unemployment, and airline economics.-Education:...
]