This is true because a new index will not, by itself, lower the government's absorption of resources. Rather, increased national saving will result from the lower private consumption induced by the policy. This Economic Commentary summarizes the case for redefining the CPI and provides estimates of the additional national saving that would be generated if such a policy were implemented beginning in 1996. If the composition of goods and services changes between two periods, we can record price changes for the things we consumed in an earlier period, for the things we consume in the current period, or for some combination of the two. From a statistical perspective, there is little basis for preferring any of these approaches.
Economists usually recast that question.
Here, of course, there is only one correct answer, which economists have dubbed the change in the cost of living. To date, however, no one has proposed a practical way to quantify this change, and the task has largely been thrown back to the statisticians. In all likelihood, this approach overstates actual changes in the cost of living, since it does not account for the changes people make in the composition of goods that they purchase-often in response to price changes. Presumably, household spending would shift toward goods whose prices rise more slowly than average and away from those whose prices rise more rapidly than average. Because the BLS does not adjust the market basket of goods and services to account for these cost savings, the change recorded by the CPI tends to overstate the true change in the average person's cost of living.