Steve Chapman

Inflation hawks have been predicting a severe outbreak for years. But David Henderson, an economist at Stanford University's Hoover Institution and the Naval Postgraduate School, has been skeptical enough to put his money where his mouth is.

In December 2009, he publicly bet economist Robert Murphy of the Pacific Research Institute $500 that by January 2013, there would not be a single point at which the CPI would be up 10 percent or more from a year before. So far, it hasn't been, and it shows no sign it will.

Another economist who thinks inflation is the least of our worries is Scott Sumner of Bentley University in Massachusetts. He says the increase in the money supply has not unleashed inflation because the demand for dollars has risen as well.

When banks or individuals hold on to cash, he notes, the effect is the same as if the Fed were shrinking the money supply. By refusing to spend or invest, they stifle economic activity.

That effect is apparent in the slowing of the economy, which was not exactly galloping to start with. That has put job growth on a glacial pace. Three years after the recession officially ended, we have five million fewer jobs than we had before it began.

The Fed's past quantitative easing programs have helped, but they haven't been big enough or lasted long enough. Sumner argues the central bank should commit to sticking with that tactic as long as it takes to get growth back to a healthy pace -- backing off only if inflation gains a real foothold.

Could inflation make a comeback? Sure. So could the Soviet Union. But until it does, we should deal with dangers that are not imaginary.

Steve Chapman

Steve Chapman is a columnist and editorial writer for the Chicago Tribune.

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