New York Times
November 28, 2011
Lords of Finance, Liaquat Ahamed’s magisterial 2009 history of the events that led first to the Great Depression and then to the Second World War, is, necessarily, a book about policy mistakes. Central bankers and Treasury secretaries, presidents and prime ministers: all of them are locked into their own economic and political orthodoxies. Each is certain that his is the only sensible course of action. Crippled by their blinders, they consistently make economic choices that appear to us, nearly a century later, to be insane but to them seemed completely sensible.
Perhaps the worst of the policy errors during the post-World War I period was the insistence of the Allies that Germany pay war reparations — reparations that went far beyond anything that the defeated Germans could afford. As the victors, the Allies felt that it was only fair for Germany to pay for the terrible war it had waged, and they didn’t much care about whether such payments would cripple the German economy.
Which, of course, they did; by the early 1930s, the country was effectively bankrupt. And the Allies’ unrelenting demand for reparations bred immense resentment among the German people. There is not much doubt that this combination of public anger and economic distress helped facilitate the rise of Adolf Hitler.
Today, it is Germany that is making policy moves that seem insane. Locked into their modern-day orthodoxies, German politicians look at Greece with something akin to contempt. Aid to Greece — aid that is given grudgingly, when it is given at all — must be accompanied by severe austerity measures, the Germans believe, because the Greeks need to learn how to live within their means, the way Germans do.
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