Illustration: Lazaro Gamio/Axios

The absence of inflation is forcing a wide-ranging rethink of long-held economic assumptions.

Driving the news: In his annual letter to shareholders, Warren Buffett admits that though he regularly preached "doom because of government budget deficits" he is no longer in that camp. And former IMF chief economist Olivier Blanchard argued in a speech that for countries like the U.S., high public debt isn't necessarily a problem.

The state of play: As the New York Times' Neil Irwin points out, politicians also are quickly joining the deficits-don't-matter club.

  • Rep. Alexandria Ocasio-Cortez (D-N.Y.) recently indicated openness to "modern monetary theory," the idea that deficits don't matter for countries that can print their own money.
  • President Trump did not once mention the debt or budget deficits in this year's State of the Union address, nor did he mention it last year, despite expected annual shortfalls over $1 trillion.

What's happening: The debt has not mattered largely because inflation has been absent from the economic equation.

  • It's inflation that raises capital and labor costs for businesses, reduces available capital for investment and clogs government balance sheets, forcing other expenditures to be capped or scrapped. But over the past decade or so, inflation has been a non-factor, even after back-to-back years of above trend growth and government spending binges.
  • Economists have argued about the reasons, pointing at everything from the internet to the lack of unions to globalization to the way companies have invested their profits. But the end result remains the same.

What they're saying: "We've got inflation well under control here, and we don't need to be pre-emptive trying to control inflation going forward," St. Louis Fed President James Bullard said Friday.

  • In an interview the same day, Bullard elaborated, saying there has been a breakdown in the "Phillips curve," or the relationship between unemployment and inflation. "That's got people backing off the idea that there’s such a lockstep relationship between the real economy and inflation," Bullard said.
  • Further, officials at the Federal Reserve now are reconsidering the 2% inflation target that has been in effect since 2012.
  • Other central banks also are moving away from raising rates or slowing down stimulus as inflation has globally gone missing in developed markets like the Japan and Europe as well.

But, but, but: The ongoing crisis in Venezuela has shown that too much money chasing too few goods can still create problems. President Nicolás Maduro's money printing has led to an expected 10,000,000% inflation this year, undermining any attempts to stabilize the country's currency or its economy.

Go deeper: Warren Buffett argues government budget deficits don't matter

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Illustration: Annelise Capossela/Axios

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