Alternatives for Future Crises
Charles S. Maier and Leon N. Lindberg
What lessons does the great inflation of the 1970s offer? Inflations, as Robert Keohane comments in chapter 4, are not "natural disasters." National societies retain some degree of freedom in submitting to or resisting inflation. They can undergo greater or lesser degrees of the price rises that were so dislocating for over a decade. This study is built on the premise that economies are institutional arrangements responsive at least in part to political and social choice. Centralized decisions as well as "the invisible hand" can affect the output of goods, the allocation of time and labor, and the movement of prices.
Having choices does not make policymaking easy. There are several orders of difficulty. First, the alternatives are often painful. The cost of not undergoing inflation may itself be a great one. Second, it is hard to measure the pain. How do countries choose between the discomfort caused by, say, 10 percent inflation or 7 percent unemployment?1 Nonetheless, societies may arrive at a consensus that some choices are less optimal than others. Some waste more human and material resources; they impose welfare costs that may not be necessary. The point is to secure the least unfavorable trade-off, to move, in the economists' jargon, to the utility curve farthest from the origin. Charting those curves in the technical sense--that is, measuring the numbers--remains the task of the economists. But there is a further order of difficulty. An economy does____________________