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Hastings Law Journal

Authors

Jim Chen

Abstract

Because no economy is forever free from price change, a legal system that seeks to maintain its vitality across the full range of macroeconomic conditions must adopt a proper measure of inflation. In areas such as taxation, economic regulation, and private contracting, the law's response to inflation constitutes a policymaking opportunity in its own right. In campaign finance and judicial compensation, the legal treatment of inflation may have constitutional consequences.

In spite of inflation's profound ramifications for the law, federal law has taken a seemingly haphzard approach toward its measurement. Federal statutes specifying one price index strongly favor the Bureau of Labor Statistics' Consumer Price Index (CPI) over the implicit price deflator (IPD) derived from the Bureau of Economic Affairs' computation of the gross domestic product. The IPD, however, boasts two methodological advantages that enable it to outperform the CPI in many circumstances. The IPD not only covers a deeper range of goods and services in the economy; it also eschews the fixed-weighted market-basket approach of the CPI. Both features offset the CPI's tendency to over report the rate of price change in the U.S. economy.

Adopting the superior inflation index presents a daunting legal task. In reviewing a federal administrative agency use of inflation indexes in price-level regulation, courts should not hesitate to demand that the agency use the broadest available measure of price change in the economy at large. Most other settings in which inflation arises as a legal issue, however, commits the choice of an index to legislative discretion. Because courts cannot countermand specific legislative references to one index or the other, and because neither index suits for all legislative needs, substitution of the IPD for the CPI (or vice versa) must almost invariably be achieved through piecemeal amendment. Refining the legal measurement of inflation therefore demands both an expectation of imperfection and an enduring commitment to reinvention.

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