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There have been a lot of studies on this question. The Boskin Commission made an estimate of how much CPI is overstated due to the 'more bang for the buck' principal you describe. For example, if a Red Delicious apple was in the CPI in 1970 and today, you are basically talking about the same apple. It makes sense to compare the prices of the two products to see whether apples have gotten more expensive, and by how much. But if a color television was in the CPI basket in 1970 and is still in the basket in 2002, it still doesn't tell you too much to compare the prices, because the 2002 television is a very different animal than the old one was. It may be three times more expensive, but how can you calculate how much better it is in terms of picture quality, sound quality, cable readiness, remote control and so on? The Boskin Commission actually put a number on this product enhancement creep, but I can't remember what it was.

Product enhancement creep meets psychology....Here's a thought that occurs to me when you describe the Boskin Commission.

To the consumer, it is still a color TV. Even though it has more features, it is still worth to the consumer the same as a less capable color TV in 1970. The consumer in 1970 feels just as good about his purchase as the consumer in 2002, even though the consumer in 2002 would not feel very good spending any amount of money on a 1970 model TV (except for some strange collectors among us).

Does this make sense? I look at it like I see the $3,000 PC. I feel good buying a $3,000 PC about every 4 years. Same amount of money, same feeling of having a new more capable machine, even though, objectively, the last $3,000 machine I bought is like 10,000 times more capable than the IBM PC with 64Kb RAM and dual floppy drives and a CGA monitor that I bought for $3,000 in 1984.

Strange thing, value.