"You are confusing productivity with the aggregate supply for money in aggregate (inflation)."
No, I am not. It is possible to have deflationary markets within an economy that is overall inflationary. It is also possible to have inflationary markets in an overall economy that is deflationary. The only difference here is that I was talking about an individual market, not the economy as a whole.
"Having a low inflation rate has not always been the goal of the central bank."
No shit, Sherlock. That was part of my point.
"There have been times (70s in particular) when the Fed cranked up inflation."
Yep. Leading directly to "stagflation". Right. Another example of the government's (and Fed's) consistent failure to change the economy through intervention.
In case you hadn't noticed, we're experiencing stagflation again right now: a period of relatively high inflation coupled with a persistently high unemployment rate.
"They now know they were wrong."
Yep. But it took the Austrians, and Monetarists like Milton Friedman, to explain to them how they're wrong. Yet "mainstream" (Neo-classical and Keynesian) economists keep rejecting Austrian and Monetarist principles, even though those schools have provably been better at not just explaining, but also predicting major economic events.
"Read up on the issues and flaws of using a price index to measure inflation -- It is one of the better measures we have but there are still flaws. Factor in that the data prior to 1912 is second rate. Then redo your chart us a log scale, which you should do when looking at percent changes."
Just no. Your points, one at a time:
First, the ONLY semi-reliable way to determine "inflation" is to compare the price levels of equivalent goods over time. There is no way around that. I mean, that's what inflation is a measure of!
Second, the data prior to 1913 (not 1912) is data from the acknowledged expert in the field, and he didn't just pull the numbers out of his ass. It is the best data there is, so there's no point bitching about it. You have to live with what you've got. And it's not as bad as you appear to be implying. I could just as easily argue that the data since 1913 are second-rate, because they were obtained government's own calculations, which are known to be skewed.
Third, since the graph does not show a percentage difference at all, but rather absolute amounts, a log scale would be inappropriate.