------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (February 2010)

Thomas A. Stapleford, _The Cost of Living in America: A Political 
History of Economic Statistics, 1880-2000_. New York: Cambridge 
University Press, 2009. xviii + 421 pp. $30 (paperback), ISBN: 
978-0-521-71924-7.

Reviewed for EH.NET by Trevon Logan, Department of Economics, Ohio 
State University.


Thomas Stapleford of the University of Notre Dame has managed to make 
fascinating what is likely one of the most boring parts of economic 
theory -- the calculation of price changes.  Indeed, standard 
textbooks at the undergraduate and graduate level pay little 
attention to such issues.  He does so by bringing a keen insight into 
the analysis -- price indices are not simply economic measures, they 
are inherently political measures that reflect the growing interest 
of the state in human welfare and economic policy.  While economists 
know well the theoretical differences between different ways of 
measuring price increases (Laspeyres, Paasche, Marshall, and so on), 
the development and use of these measures had a more intimate 
relationship with political and historical realities than we may 
realize.  Stapleford's book describes this relationship over the 
twentieth century in the United States.

It was quite wise for Stapleford to begin his book's introduction by 
considering the controversy around the Boskin Commission's work on 
whether or not the CPI was overstating inflation, which briefly 
caused the economics profession to reconsider what we knew about 
price indices (this is not to say that work had stopped before or 
after, but price indices are no longer a "hot" topic in economic 
research).  As he makes clear, very small changes in the CPI have big 
effects (he notes by the early 1950s a 0.5 percent change in the CPI 
would cause transfer payment changes of $1 billion).  This strategy 
highlights the importance and the continuing debate about the proper 
measurement of the CPI.  Stapleford also uses the introduction as an 
opportunity to lay out his main thesis: the idea that rationalization 
is the driving force behind the development of economic statistics 
(mainly the Consumer Price Index, CPI).  To him, rationalization is 
the way that the state takes controversial issues and places them in 
the hands of bureaucrats behind a wall of objective "science."  As an 
example, we do not decide to increase or decrease Social Security 
payments when we "rationalize" the process by indexing the benefits 
to inflation.  The Bureau of Labor Statistics (BLS) becomes a 
collection of experts who use a given technique (supposedly a 
"scientific" one) to arrive at a number that has large effects on the 
economy.   The key, to Stapleford, is to realize that such a decision 
is a decidedly political one with seen and unseen causes and consequences.

Overall, this is intellectual and political history of the first 
rate.  Well researched, carefully argued, it does a good job of 
describing the technical difficulties in price indices without losing 
focus on the historical narrative.  As a scholar of early consumer 
expenditure surveys myself, I was particularly impressed with 
Stapleford's descriptions in the early chapters of the failed efforts 
to combine the state statistical bureaus into a national force with 
systematic evidence.  While the data collected by the state bureaus 
has given economic and social historians a detailed picture of many 
aspects of working class life from 1870 to 1910 or so, Stapleford 
impressed upon me how much we _lost_ by the inability to regularly 
and systematically survey workers, firms, and prices.  But Stapleford 
ties this failure to politics -- there was simply very little need 
for the state bureaus to cooperate because there was no national 
consensus for what anyone would even do with the price series that 
could be created.  Rather, since each state bureau had its own 
charge, resource constraints, and politics, the jumbled mass of 
surveys reflects the jumbled thinking about the usefulness of 
economic statistics at the time.

After these first chapters Stapleford is left to explain how we 
constructed and codified the CPI.  In the remaining chapters 
(especially chapters 3 through 6) he builds his case -- in his 
narrative the impetus for the construction and maintenance of federal 
economic statistics, and the later canonization of them, took place 
from roughly 1910 to 1945.  There was no one key event; the needs of 
World War I, the increasing concerns about labor disputes and wages 
in the 1920s and the Depression each exerted independent forces that 
not only caused a much larger federal presence in the economy, but a 
much larger federal _measurement_ of the economy.  World War I 
impressed upon the government (and its citizens) the need for 
efficient control of resources that needed to be harnessed for 
national defense.  In the 1920s, both organized labor and big 
business saw the need for standard measures, which were many times 
used to settle labor disputes.  This is key for Stapleford's 
hypothesis of rationalization since both labor and business could 
appeal to "objective" measures of the cost of production and 
consumption.  The final movement was solidified by the Depression, 
which left the federal government with the duty to regulate the 
economy, and also gave it the power to define how that economy would 
be measured.  Given the uses of the price measures in the decade 
before, it was natural to appeal to these economic statistics when 
setting goals and in dispersing transfers.

In Stapleford's narrative the concept of "purchasing power" was a 
politically loaded expression of progressives' desires for large 
changes in industrial relations, while the economic theorists and 
institutionalists argued about whether a "true" cost of living could 
be accurately measured.  These developments did not take place 
independently, as Stapleford shows time and again that the choice of 
method and, indeed, the decision to measure at all, were carefully 
navigated political processes.  Stapleford shows that during FDR's 
administration BLS officials used the economic circumstances to place 
themselves in a key position for national economic policies.  For 
example, the Economy Act of 1933 allowed the federal government to 
reduce wages by up to 15 percent based on the BLS cost-of-living 
index.  Stapleford shows that this technique of indexation gave the 
BLS a larger role in the macroeconomy as indexation proliferated, 
which he argues is consistent with his rationalization 
hypothesis.  Even after the war the units of measurement they 
developed -- the series on prices and wages -- continued to exert 
influence after the New Deal policies were abandoned.

While the heart of the book ends at the beginning of the 1950s, 
Stapleford spends the last two chapters describing the way that the 
CPI came to be used as a macroeconomic measure, and even delineates 
the debates about what the index should be.  By this Stapleford does 
not mean inflation as pi used in macroeconomic models, but for the 
way that through the 1970s the federal government more and more began 
to index transfers to inflation.  This began with poverty lines in 
the Great Society, extended to Social Security, and by the early 
1980s income tax brackets were indexed.  By the end of this 
indexation movement roughly 50 percent of federal expenditures became 
tied to the CPI either directly or indirectly.  While the CPI has 
long aimed to be a "constant utility" measure, Stapleford concludes 
by noting that while theoretically advantageous, the problems with 
the "constant utility" measure of the CPI continue to raise a number 
of troubling issues. (Chief among them is whose utility we are 
measuring.) Indeed, the BLS has recently begun developing alternative 
CPIs for different groups whose utilities may be more dependent on 
certain expenditure categories (as in the case of older Americans who 
spend more on health care).

There are naturally some drawbacks.  One drawback of the book is that 
Stapleford paints with a relatively broad brush at times.  He 
regularly implies that the CPI is intimately related to a host of 
other economic statistics, but this is truly a book about the 
intellectual history and political history of the CPI.  This is not a 
critique of the book, but the focus could have been sharper if 
Stapleford had tempered his desire to use the CPI history and then 
cast a wider, more tenuous net to other measures, especially later in 
the book.  As economic historians know well, unemployment, industrial 
production, and GDP itself are their own stories (and their histories 
certainly deserve to be revised or in some cases written as 
well).  Another drawback is that the intellectual development of the 
indices, while covered well for the novice reader, takes a decided 
back seat to the politics, but to be fair that is exactly Stapleford's point.

And perhaps putting the economics in the background was a good 
idea.  About a year ago I was attending a seminar on the misuses of 
the Penn World Tables -- the large and well used panel dataset of 
country GDP and other macro indicators.  The seminar speaker 
discussed the fact that revisions of the data changed the results of 
many well-cited and influential papers.  These included studies of 
the effects of assassinations on growth, the relationship between 
volatility and growth, and civil conflict and growth.  An elder 
statesman remarked that economists today do not pay much attention to 
issues such as the measurement of prices and inflation, and that we 
(as a profession) are worse for it.  I agree.  For some reason the 
thorny issues involved in something as "simple" as a price index have 
fallen out of vogue in favor of what we like to think of as "causal" 
policy analysis.  The bite is that we know, without the use of 
instrumental variables and the sometimes fantastic stories that 
accompany their use, price index calculations are causally related to 
a host of economic issues.  Even more, all of our time series or 
panel estimates depend, critically, on getting the prices right -- 
applied microeconomists are not exempted.  One can only hope that 
Stapleford's book will cause renewed interest into one of the most 
important (and _non_-mundane) economic statistics in use.


Trevon D. Logan is an Assistant Professor of Economics at Ohio State 
University and a Faculty Research Fellow at the National Bureau of 
Economic Research. Recent publications include "Economies of Scale in 
the Household: Puzzles and Patterns from the American Past" in 
_Economic Inquiry_, "The Transformation of Hunger: Demand for 
Calories Past and Present" in the _Journal of Economic History_, and 
"Health, Human Capital, and African-American Migration before 1910" 
in _Explorations in Economic History_.

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