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Opinion
Tyler Cowen

Inflation Will Be Exactly What People Expect It to Be

A lot of uncertainty over whether prices will rise or fall can be settled with one question: What do you think?

Not a sign seen too often nowadays.

Not a sign seen too often nowadays.

Photographer:  Emily Macinnes/Bloomberg

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Sometimes yesterday’s crazy idea turns out to be sane or even essential. For instance, Fischer Black, the late finance economist and co-discoverer of modern options pricing theory, argued that the rate of price inflation will be whatever we think it will be.

If expectations are that inflation will be high, it will be high. If expectations are that inflation will be low, it will be low. For Black, who died in 1995, this was always true, at least for modern economies.