the cpi. for that and other reasons outlined in the boskin commission report and other studies, we know with near certainty that the current cpi is off. we do not know precisely by how much, however. there is, nonetheless, a very high probability that the upward bias ranges between ½ percentage point per year and 1½ percentage points per year. although this range happens to coincide with the one i gave two years ago, it does reflect both the improvements in the index that the bls has implemented since then and the emergence of evidence suggesting that the initial problem was of a slightly greater dimension than had previously been estimated. this estimate is consistent with a number of microstatistical studies as well as an independently derived macroevaluation by staff at the federal reserve board, which i will discuss shortly. in judging these evaluations, it is incumbent upon us to resist the evident strong inclination to believe that precision is the equivalent of accuracy in price bias estimation. if we cannot find a precise estimate for a certain bias, we should not implicitly choose zero as though that was a more scientifically supportable estimate. there is no sharp dividing line between a pristine estimate of a price and one that is not. all of the estimates in the cpi are approximations, in some cases very rough approximations. further, even very rough approximations can give us a far better judgment of the cost of living, than holding to a false precision of accuracy. we would be far better served following the wise admonition of john maynard keynes that “ it is better to be roughly right than precisely wrong. ” estimates of the magnitude of the bias in our price measures are available from a number of sources. most have been developed from detailed examinations of the microstatistical evidence. however, recent work by staff economists at the federal reserve board has added strong corroborating evidence of price mismeasurement using a macroeconomic approach that is essentially independent of the exercises performed by other researchers, including those on the boskin commission. in particular, employing the statistical system from which the commerce department estimates the national income and product accounts, the research finds that measured real output and productivity in the service sector are implausibly weak, given that the return to owners of businesses in that sector apparently has been well - maintained. taken at face value, the published data indicate that the level of output per hour in a number of service - producing industries has been falling for more than two decades. in other words,

a true cost - of - living index would reflect this value and its implication for the true rate of growth of the cost of living. the cpi does not reflect it, and accordingly fails to capture a significant offset to price rises in other products. deriving an estimate of this value and building it into the cpi will not be an easy undertaking. but conceptually, it is unquestionably the right direction to be heading, and some recent research suggests that it could measurably affect the index. over time, we will need to investigate alternative sources of data. already, there is interesting work being done to develop techniques for processing data collected from bar - code scanners at the check - out counter. scanner data will allow the bls to track not just a small sample of products, but virtually the entire universe of products in selected lines of business and, perhaps most importantly, virtually the universe of transactions, regardless of whether those transactions happen on a weekday, at night, or on a holiday. we should also move to improve our understanding of the value that consumers place on their own time. absent such knowledge, it will be impossible for the bls to estimate the value of many goods and services that mainly serve to enhance convenience and save time. finally, we will have to attempt to build an understanding of why consumers shop at the places they do : what characteristics of an outlet are important, and how much so? location, hours of operation, inventory, and quality of service all are likely influences on the value that consumers place on their shopping experience, and all will be important in helping the bls to develop a more sophisticated statistical method for dealing with the appearance of new consumer outlets, including those that operate over the internet. even if the bls moves aggressively, some upward bias will almost surely remain in the cpi, at least for the next several years. two years ago, in testimony before this committee, i suggested that a workable structure for dealing with this situation might involve a two - track approach. that suggestion still seems to me to make sense. the first track would involve action by the bls to address those aspects of the bias that can be dealt with in relatively short order, say within the next year. the second track would involve the establishment of an independent national commission to set annual cost - of - living adjustment factors for federal receipt and outlay programs. the commission would examine available evidence on a periodic basis, and estimate the bias in the cpi taking into account both