Key Figures Behind the CPI and the Study of Inflation
Irving Fisher (1867-1947)
The Yale economist who did more than anyone to put price index construction on a rigorous footing. His The Making of Index Numbers (1922) evaluated dozens of possible formulas against a set of desirable properties and identified what is still called the Fisher ideal index, the geometric mean of the Laspeyres and Paasche indexes. Fisher also gave economics the Fisher equation linking nominal interest rates, real interest rates, and expected inflation, and the equation of exchange formulation of the quantity theory of money. His work on debt deflation, written after the 1929 crash, argued that falling prices raise the real burden of debt and can turn a downturn into a spiral — an argument later economists returned to repeatedly.
Milton Friedman (1912-2006)
The Chicago economist whose A Monetary History of the United States, 1867-1960 (1963), written with Anna Schwartz, marshalled a century of data to argue that monetary conditions drive the price level, summed up in his line that inflation is always and everywhere a monetary phenomenon. In his 1967 presidential address to the American Economic Association, delivered in a period when the Phillips curve was often read as a stable menu of choices, Friedman argued — as Edmund Phelps did independently — that there is no permanent trade-off between inflation and unemployment, and that attempts to hold unemployment below its natural rate produce accelerating inflation. He received the Nobel Memorial Prize in Economic Sciences in 1976.
Robert J. Gordon (b. 1940)
A Northwestern economist and long-standing member of the NBER's Business Cycle Dating Committee whose work in the mid-1970s is frequently cited as an early formulation of core inflation — the idea of stripping volatile food and energy prices out of a price index to see the underlying trend more clearly. Gordon also did extensive work on the measurement of quality change in the CPI, arguing that unmeasured improvement in goods causes indexes to overstate true price increases, and he served on the Boskin Commission. His later research on the sources and slowdown of American productivity growth, collected in The Rise and Fall of American Growth (2016), addresses the long-run counterpart to the inflation question.
Michael Boskin (b. 1945)
A Stanford economist who chaired the Council of Economic Advisers under President George H. W. Bush and then chaired the Advisory Commission to Study the Consumer Price Index, appointed by the Senate Finance Committee. The commission's December 1996 report, Toward a More Accurate Measure of the Cost of Living, concluded that the CPI overstated cost-of-living increases by about 1.1 percentage points annually and set out the four sources of bias — substitution between goods, substitution between retail outlets, quality change, and new products — that have organized the debate ever since. The estimate was contested at the time and remains debated, but the report drove real methodological change at the BLS and shaped later policy decisions about which index to use for indexing.
Arthur Okun (1928-1980)
Best known for Okun's law linking output and unemployment, Okun also created the measure that put inflation and joblessness in a single number: the Misery Index, the simple sum of the unemployment rate and the inflation rate. Devised in the era of rising inflation of the late 1960s and 1970s, it became a fixture of political argument in the stagflation years precisely because it captured the thing that made the period distinctive — both halves of the macroeconomic scoreboard deteriorating at once, which the simplest reading of the Phillips curve said should not happen. As a diagnostic it is crude, weighting a point of inflation the same as a point of unemployment, but as shorthand for the 1970s experience it endures.