I have a lot of respect for Allan Meltzer. His History of the Federal Reserve is a real achievement; I've even cited it a few times in my own writing. But on the question of the current inflationary threat, the subject of his op-ed in yesterday's New York Times, I agree with Paul Krugman, whose response can roughly be summarized as: Huh?

Meltzer is most mystifying when he writes: "Besides, no country facing enormous budget deficits, rapid growth in the money supply and the prospect of a sustained currency devaluation as we are has ever experienced deflation. These factors are harbingers of inflation."

At which point Krugman adduces the example of Japan in the '90s.

I'd just add one other point, which is that this claim comes closer to bolstering the case Meltzer is arguing against than the one he's making. That is, if no country with large budget deficits and rapid money-supply growth has ever experienced deflation (set aside the currency question for the moment, since the collapse of the dollar would have serious collateral effects beyond inflation), then these seem like pretty good policies at a time when a huge output gap is creating serious deflationary pressure. Meltzer's case would be more compelling if no country with small deficits (or a balanced budget or a surplus) and a stable (or shrinking) money supply had ever experienced deflation. If that were true, we should take Metlzer's advice and cut the deficit and rein in the money supply. But, of course, something close to the opposite of that is true, the Great Depression being exhibit A.

--Noam Scheiber