the 1990s were a decade of financial and economic crises, but they were taking place far away, on the periphery of the developed world, in what were fashionably known as the emerging markets. From Latin America to Southeast Asia to Russia, fast-growing economies were periodically imploding in financial crises that imposed widespread misery on their populations. For the economic gurus in Washington, this was an opportunity to teach the rest of the world why they should become more like the United States. We did not realize that they were already more like us than we cared to admit.(p.38)
It may be hard to remember now, but the 1990s were a time of euphoric optimism not just among economic elites, but the mass of the population as well. The collapse of the Soviet Union and the end of the Cold War seemed to prove the ultimate triumph of free market capitalism and liberal democracy over all other competing systems, as Francis Fukuyama argued in his enormously influential 1992 book The End of History. The expansion of the high-tech sector and the emergence of the Internet seemed to portend a future of endless economic growth and productivity gains, which allowed for some growth in working people's wages. All this produced a dominant ideology that Thomas Frank called "market populism" in his book One Market Under God - the belief that the free market was the true expression of the people's will, not government, and that entrepreneurs were revolutionary figures with almost divine powers. Through the workings of the International Monetary Fund (IMF) and the Treasury Department, the U.S. sought to remake nations after our own image in the wake of financial crises because we had supposedly avoided all of the problems that give rise to them, notably the "tight connections between economic and political elites" (p. 55) that plagued countries like South Korea (chaebol), Indonesia (Suharto's crony network), and Russia (the oligarchs).
But as Johnson and Kwak argue, by 2008 the U.S. economy looked increasingly like those of the emerging markets in the 1990s, and the government's policy response to the crisis - bailing out major banks with strong political connections like Goldman Sachs, while letting smaller and less well connected banks fail - was almost completely at odds with the kind of advice it gave to other nations in the 1990s. "It began to seem as if our government was bailing out its own, uniquely American oligarchy." (p. 56) How we got to this point is the question taken up by the authors in chapter three.
Question for discussion:
For years, the United States dispensed advice (whether it was wanted or not) to other countries about how their economic and financial systems should be structured. Is there anything that the United States could learn from other nations that have not been so adversely affected by the recent crisis and recession? As commenter Larry M. said in response to the previous post, "we might look to the Canadian model of tightly governed, state-supported banks as a basis of comparison to our system," though he personally does not advocate that our country adopt such a model. What other options might we be able to turn to?