Angus Deaton's Misunderstandings of Price Indices
Price changes, not levels, drive substitution.
One item that I didn’t get room to discuss in my recent review of Angus Deaton’s Economics in America is his discussion of the Consumer Price Index. Given the early work that earned him his reputation—see my biography of Deaton in David R. Henderson, ed., The Concise Encyclopedia of Economics—his confusion about price indices is, to put it mildly, surpr…
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