Former Federal Reserve Board Chairman Paul Volcker lectured readers on the dangers of inflation in a NYT column today. He warned that a little bit of inflation invariably grows to a lot of inflation, which then carries a huge cost to contain.

Actually this has not in general proven to be the case. The one time in the post-war period where inflation clearly became excessive in the United States was in the 70s. This was due to a number of extraordinary events, including large oil price increases associated with the formation of OPEC and the Iranian revolution, a huge wheat deal with the Soviet Union, and a mis-measurement of the rate of inflation that got directly translated directly into wages and other prices as a result of wide-spread indexing. 

Even in this case, the cost of bringing inflation down with the 1981-82 recession was minor compared to the costs that the country is now enduring as a result of the current prolonged downturn. It is hard to see how any careful analysis of risks and costs would support Mr. Volcker's warnings on inflation.

It is worth noting that the financial sector might view the equation differently. Its assets are directly devalued by even modest rises in the rate of inflation. For this reason, the financial industry tends to be strongly opposed to inflation even at the cost of high unemployment.