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RE: How Does the New Lower Inflation CPI Rule Under the Republican Tax Bill Work?
However, we are assuming only consumers would make changes to their consumption. How do you think this would affect producers? Do you think they would invest in technology to try to lower marginal cost and remain competitive?
Great questions and welcome to Steemit!
Proponents of the Chain CPI are "assuming" that consumers will change their behavior in predictable ways, by preemptively adjusting the basket of goods. The better practice would be to make such adjustments after the basket of goods has in fact changed, as is currently done.
Producers who tie wage increases to the CPI would benefit insofar as they could cut those increases, taking that difference in ever-increasing profits.
Producers will invest in technology every time it may significantly lower costs, regardless. For those who tie wage increases to the CPI, it is possible that there may be a tiny number who delay using new technology. However, I would not expect many for the simple reason that the difference between the higher CPI and the lower Chain CPI will take time to grow, whereas technological costs are dropping fast.
My submission is written to help people understand the concept and the general direction -- namely, that consumers will be harmed by this change.
That makes a lot of sense, thank you