In his book The Post-American World, Newsweek International Editor Farheed Zakaria justifies Paul Volker’s draconian anti-inflationary measures beginning in 1981 by suggesting that high inflation is much more dangerous than high unemployment because high inflation deprives individuals of what they have already earned, invested, or saved, while high unemployment deprives individuals only of their present and future earning capacity. Mr. Zakaria refers in this context to the repercussions that followed from hyperinflation in Europe, particularly among the former Central Powers and allies, following World War I.
Although in purely economic terms Mr. Zakaria is surely correct, may there be some value in reflecting, on the one hand, on the effects high unemployment has traditionally had on working families, and, on the other hand, on the alternatives leaders of the former Central Powers could reasonably choose in light of their destroyed industrial capacity and towering debt connected to the Versailles Treaty’s “war guilt” clause. Since Germans had neither the industrial capacity to raise sufficient capital to pay this debt nor sufficient reserves, and since it was only much later that Americans would lend to Germans at a reasonable interest rate, what were the alternatives open to such leaders?
Do economists or–in the case of Mr. Zakaria–public intellectuals have a responsibility to call attention to impact economic policies are likely to have on social and political events?