Dropbox, Google Drive, and the CPI

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There's an ongoing debate (including in the CD comments section) about whether CPI inflation as measured by the BLS overstates or understates changes in consumer prices.  Mike Mandel makes the case here that the CPI may significantly overstate inflation because it doesn't capture many of the significant price decreases in online services, many of which are now free: Dropbox (which Mike Mandel uses 25-50 times per day) with 2.5 GB free storage, Google Drive ("Keep Everything, Share Anything, Access Everywhere") with 5 GB of free storage, and well, even free blogs like Mike's (Mandel on Innovation and Growth), and Marginal Revolution, Greg Mankiw's blog, Cafe Hayek, etc.

Consider that before the Internet, you'd have to buy books written by Tyler Cowen, Don Boudreaux or Greg Mankiw to access their expertise and knowledge, and you can now learn economics from them for free by reading their blogs.

Here's Mike:

"The omission of free online services from the CPI, once insignificant, has become increasingly important as we spend more and more of our time online. What has the bigger impact on Americans–an increase in the price of “lunchmeats” (2.3% over the past year) or a decline in the price of online storage (arguably down by as much as 50%, though it is probably less)?

That’s a real question, incidentally, not a rhetorical one. We may have reached the point where Internet companies are providing free services that have a higher value than some things we pay for. How do we change our economic statistics to reflect this new reality?"

MP: The reason this is an important economic issue is because if CPI inflation overstates true consumer price inflation due to mis-measurement of items like free online services, it would mean that the growth in real wages, real income, real output, etc. over time have been understated. 

HT: Mister Ed