In Black’s view of the world, if people expected inflation to be high, they would spend and borrow more. Banks would create the money for this process to be self-sustaining. Under this framework, Black might have argued that no major inflation resulted after 2008 because Americans simply were not bullish enough, given the recent financial trauma.

Paul Krugman has argued that there was not high inflation after 2008 because the U.S. economy was in a liquidity trap. Black’s rejoinder to the Keynesians was a subtle one: We are always in a liquidity trap. Since banks can bid for reserves, and reserves can pass in and out of banks freely, the net value of additional bank reserves must be equal to other uses of the funds. The monetary expansion of the U.S. Federal Reserve, which operates through banks, is thus like swapping two nickels for a dime. Whether or not nominal interest rates are zero, after the swap banks can still move back to whichever portfolio they wished to hold. Thus any Fed actions will prove neutral if that is what the banks, and the economy as a whole, desire.(1)

One argument is that it is different this time because the U.S. government engineered a major fiscal policy response to the crisis, not just a monetary response. Maybe, but if you focus on the fiscal side, you should be very strongly on Team Transitory — that is, believe that currently high inflation rates will fade rapidly.