What the inflation contrarians get right and how to fix it

(Also what they get wrong)

Hey folks, hope everyone enjoyed the long weekend and is getting excited about Inauguration tomorrow.

Today I want to talk about two things that seem far afield but that I believe to be related. The idea of a universal child allowance, which I call for in One Billion Americans and disagreements about monetary policy.

So monetary policy first. This is the Personal Consumption Expenditure Deflator — the price index that the Fed says it is targeting. Officially, the Fed is supposed to have a symmetrical two percent inflation target. In other words, the PCE deflator should grow at about a 2 percent rate, equally likely to be above or below 2 percent. And as you can see, that’s not the case. The Fed has been close-ish since the end of the Great Recession but definitely erring on the side of too low.

There are a bunch of reasons for that, but one reason is that the world is always producing new rounds of theories which purport to say that the real inflation rate is higher than that. The late…