By Robert J. Shiller; Edited by Lawrence Kay
The Case For A Basket, recommends the introduction of a new indexed unit of account that is tied to inflation as measured by a consumer price index (the existing Consumer Price Index, for example). This indexed unit, called a ‘basket’, would help people assess value, even where price levels fluctuate, enabling them to make far more rational financial calculations. Adopting this new unit of account would be essentially cost-free. It would be a way of “nudging” people to undertake more rational behaviour, without coercing them. It would make indexing much easier to use. Promoting the wider use of indexing would allow people to protect the value of long-term contracts which would otherwise be eroded by inflation.