Economists are aware of the perils of over adjusting these factors. That's why you see things like the 1999 decision to change pollution from a quality to a price adjustment. Honestly, considering the large negative externalities of pollution, I don't know why they wouldn't view pollution controls as an increase in quality. Perhaps its because pollution controls are government mandated so it's not like people can choose to buy "lesser quality" cars that don't have them.
As a hypothetical, let's say a man in 1970 makes just enough to buy an average car, an average house, and an average TV. Compare him to a man from 2010 that makes just enough to buy an average car, an average house, and an average TV. You would say, with no quality adjustments, that these men earn the same amount of money. But then why would anybody that isn't absolutely crazy prefer the goods that the 1970 man bought?
I'll note that cars and houses are not hedonically adjusted. The value of the increased quality is estimated the old-fashioned way: by comparing prices to things with the feature to things without the feature.
Regarding substitutions, CPI is meant to capture the change in prices in a basket of representative goods. If people are changing what they're buying then the basket needs to change. Spending habits just don't stay the same over time. For example, people spend more on entertainment now than they did 40 years ago.
The statement "any rational consumer would rather have a new car than used, all other things held constant" is either not true or a banal tautology (depending on what you mean by "all other things"
. I know at current prices I prefer a used car to a new car. If you mean literally all other things held constant than the definition of "rational consumer" requires preferring more wealth to less wealth, so yes a new car is preferable. Personally, in such a situation, I'd take the new car, sell it, and buy a used car.
Measuring prices isn't easy. That's why I trust the data-driven, scientific methods and analysis of the professional, experienced, government employed economists over that of the random internet-based gold seller who was the source of the false claim in the OP. But feel free to maintain that these economists are engaged in a massive government conspiracy to screw regular americans.
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