Have economists misunderstood inflation?

Imagine it is late 2024. Inflation in the rich world has fallen from its peak but stayed stubbornly high. At around 4%, it is well above the level at which most central banks are comfortable.

Governments, weighed down by vast debts, must use precious revenues to pay interest on the debt, which itself is growing because of high interest rates. The energy transition and rising state spending owing to ageing populations add to the fiscal largesse. Raising taxes is politically fraught, so more money is printed. Inflation stays high and governments' credibility worsens. Central bankers are scratching their heads, wondering how their powerful weapon-the interest rate-has failed so thoroughly.

A wonkish theory, laid out in glorious detail in a new book by John Cochrane of Stanford University's Hoover Institution, would offer a potential explanation. "The Fiscal Theory of the Price Level" builds a theory of inflation as ambitious as that proposed by John Maynard Keynes's "The General Theory" or Milton Friedman's and Anna Schwartz's "A Monetary History". Mr Cochrane, whose own work on the subject spans four decades, spends nearly 600 pages reworking the maths of past economic models to incorporate fiscal theory, while chattily discussing how it explains past inflationary episodes. "[Elven Milton Friedman might change his mind with new facts and experience at hand," he speculates.