Inside Job Read Online Free PDF Page B

quaint. One crisis was caused by deregulationand rampant criminality; the other, by a
complex financial innovation that supposedly reduced risk, but that actually increased it. Sound familiar?
    Even though hundreds of financial executives went to prison, dozens of financial firms were bankrupted by their executives’ corruption, and we endured our first serious postwar financial
crises, by the end of the 1980s the financial sector was wealthier and more politically powerful than ever. It was a genie that America hasn’t yet been able to return to the bottle.
    America Embattled
    THE DECADE BETWEEN 1972 and 1982 was a very rough period for the US. Between 1973 and 1975 alone, the country went through the Watergate hearings,
Richard Nixon resigning in disgrace to avoid impeachment, the Yom Kippur war, the first OPEC oil embargo, the fall of South Vietnam, and a sudden recession caused by the first OPEC oil shock. Just
as the effects of the first oil shock had receded, an Islamic revolution deposed the Shah of Iran and OPEC tripled oil prices again in 1979, yielding an unprecedented combination of recession,
inflation, and high interest rates. Then, for the icing on the cake, the Soviet Union invaded Afghanistan.
    But it was also in the 1970s that America first encountered its more fundamental economic challenges: the long-term costs of its military when it was misused in distant, poorly managed wars; the
complacency and internal decay of America’s largest companies and industries; Asian competition based on the “just in time” or “lean” production model; the growth of
outsourcing permitted (even driven) by information technology; the declining market value of unskilled labour; and the need to raise the educational level of the population.
    By 1980 it was increasingly clear that the long, lazy, global dominance of American industry was over. American productivity growth declined, from 3 percent per year in the 1950s and 1960s to
less than1 percent in the 1970s and 1980s. Cars imported from Japan were not only less expensive and more fuel efficient than those from Michigan but also better —fewer assembly defects, longer lifetimes, less expensive to maintain. Similar effects were seen in consumer electronics, machine tools, steel, even semiconductor memories and
IBM-compatible mainframe computers, high-technology markets that Japanese firms entered aggressively in the late 1970s. American specialists noticed that Japanese firms often adopted new
technologies faster than their American rivals, even technologies that had been invented in America. Similarly, although Japan was far more dependent on imported oil than the US, its economy
recovered much faster from the 1970s oil shocks.
    This unfamiliar combination of low growth, two oil shocks, recessions, and rising foreign challenges led to sudden anxiety and rising anger. In 1980 MIT professor Lester Thurow published an
imperfect but very prescient book, The Zero-Sum Society, arguing that we had entered a painful phase of low growth and distributional conflict. In policy circles, an intense debate started.
Some argued in favour of protectionism, others for aggressive government investments and industrial policy.
    Many economists dismissed both Thurow’s book and the entire issue. Others argued that increased savings and investment, together with a gradual depreciation of the dollar, would take care
of America’s trade deficits and “competitiveness” problem. All mainstream economists (including some who now say otherwise) denied that the entrenchment of incompetent management,
globalization, low-wage Asian competition, or Asian national strategic industrial policies could cause a decline in living standards. To be sure, it was a confusing time; America had never
experienced anything like it before. (As a young academic I participated in some of those debates, and I didn’t get everything right, either.)
    America’s political leadership seemed