Steve Chapman

But things have not gone as they expected. From 2009 through 2013, inflation averaged 1.6 percent -- half what it was in the previous five years and lower than in any five-year period in the past half-century.

Meltzer (whom I have been calling for decades and admire) now tells me he was mistaken in 2009. Bernanke critic Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, confessed last year, "I have been surprised by the stability of inflation."

But other Fed critics have yet to admit error. They cannot accept that in certain economic conditions, a bigger money supply doesn't lead to inflation, because people and banks hold on to more cash.

Some of those who were wrong hallucinate that they were right. They claim the Consumer Price Index greatly understates the actual movement of prices. But the Billion Prices Project at MIT, which collects far more data than the government does, puts the current rate only slightly above the official number.

The fact that food costs are up doesn't mean inflation is emerging. Inflation is a rise in the general price level. If some prices are rising faster than the overall rate, that means other prices are not. Sure enough, prices for gasoline, corn and imported food have been down lately. The Rick Santelli brand also seems to have lost value.

The return of high inflation is always possible if the fed isn't careful in eventually unwinding the monetary expansion. But from the evidence to date, the Fed has a better grasp of the economy than its critics do.

Tight-money true believers have consistently let ideology dictate their understanding of the world instead of the other way around. Sensible people, by contrast, confront their misjudgments and alter their thinking to incorporate the things they failed to see -- because reality doesn't care if you think you're right.

Steve Chapman

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

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