I’m not a 100% Paul Krugman fan. But he did write something in the New York Times yesterday that I think is right, important and useful in understanding how we as investors should think about inflation. His take contrasts sharply with what I regard as the unfounded alarmism of many members of the financial press.

He makes two points:

–one is that University of Michigan, the daddy of domestic consumer surveys, finds that Americans expect that prices will rise by about 5% in 2022. But they think that inflation will decelerate next year to about 2.5% and remain at the 2.5% level for the following several years.

This contrasts sharply with the experience of the second half of the 1970s, when inflation played out as follows:

1976 +5.7%

1977 +6.5%

1978 +7.6%

1979 +11.3%

1980 +13.5%.

–the second is that although expectations for inflation in 2022 have risen over the past year from expecting prices to rise by just under 3% to 5%, expectations for 2023-26 have remained at about 2.5%.

As the Fed said over and over again in the 1980s, the ultra-high interest rate regime it adopted at the start of that decade–and the deep recession that they caused–were needed to change the belief ingrained in consumers’ minds during the macroeconomic malpractice of the 1970s that prices would continue to rise at an accelerating rate. This implied that, in Third World style, people should turn their paper money into tangibles like gold as fast as possible.

My guess is that people chastened by the object lesson of a closet full of hand sanitizer are not going to turn into tangible hoarders any time soon.

You’d think that reading about the 1970s inflation experience, or just looking at the inflation numbers from that decade, would stop fear-mongering in its tracks.

Another note: it seems to me that the domestic macroeconomic community realizes that its long-term goal of achieving stable inflation at a 2% level has been a big mistake. That’s because the Fed has found itself unable to move inflation above that level, or even to keep inflation from falling closer to zero. As the Great Depression of the 1930s taught, falling below the zero line has very bad consequences. So in a somewhat perverse sense, 5% inflation comes as a relief.