“It Ain’t Necessarily So” George and Ira Gershwin, Porgy and Bess (1935) 

It is an article of faith among conservatives that government deficits automatically carry the threat of inflation. Milton Friedman once noted that inflation is everywhere and always a monetary phenomenon. The relationship between deficits and money creation is not absolute and the short-run relationship between money creation and inflation is also not absolute.

  Inflation is a sustained increase in the price level, not an increase in any specific price or a singular increase in the price level that does not continue. These distinctions are important because inflation requires money creation to continue. When the economy is operating at less than full employment levels, neither money creation nor deficits necessarily carry the threat of inflation.

 Recent published research (The Journal of Economic Perspectives, 3rd Quarter 2010) examined the relationship between large deficits and inflation in industrial economies since 1970. Let me quote from their conclusion: “We find that large deficits are not associated with higher inflation contemporaneously, nor are they associated with the emergence of higher inflation in subsequent years.”

Conservatives have been warning of the inflationary wolf since 2009. The pressing problem is unemployed resources not hypothetical inflation.