What drives inflation? Too much money, say the monetarists. When growth in the money supply exceeds growth in output, Milton Friedman declared, prices go up.

That’s not quite right, say some dissident economists gathering under the banner of “fiscal theory.” The bigger factor, they say, is deficit spending. More precisely: federal deficits unaccompanied by any prospect of an eventual paydown.

If the fiscal theorists are right, the future for holders of the usual kind of bonds, the ones without any inflation protection, is dark, even without any inflationary pressure that might come from increased tariffs. The Committee for a Responsible Federal Budget estimates President-elect Trump’s policies would add $7.8 trillion to the federal debt over a decade.

John H. Cochrane, a 67-year-old economist at Stanford University’s Hoover Institution, author of the 584-page Fiscal Theory of the Price Level (2023) and opinionated commentator on the blog “Grumpy Economist,” is probably the most vocal of fiscal theory’s proponents. It’s not merely the deficit number that determines inflation, he says. It’s how the market perceives the excess spending.

For two centuries the U.S. Treasury mostly borrowed like a responsible credit card user, running up debt to cover an exigency, like war or recession, and then paying it down, or at least seeing it decline in relation to GDP. That pattern has now broken........

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