By Jennifer Klein, Democracy             Journal
          
      F ew headlines encapsulate a moment better than the New York Daily       News's front-page banner on October 30, 1975: "Ford to City: Drop       Dead."
     
      In early 1974, fiscally struggling New York City tried to stay       afloat by issuing new bonds. New York's banks refused,       demonstrating their power to withhold capital, and thereby setting       off a crisis. With the city locked out of the bond market, it       unsuccessfully turned to the federal government for help. Under       banker supervision, New York then implemented wide-ranging       austerity measures, after which President Gerald Ford and Treasury       Secretary William Simon agreed to short, very restricted loans,       with tight repayment strings. Simon further made clear that if the       city gave in to any union demands for wage or benefit increases or       failed to extract other savings, any further federal aid would be       withheld. While the Daily News headline captured a city's       frustration at the Administration, the broader context was also       clear: the unquestioned ascendance of finance capitalism over       manufacturing and the democratic state.
     
      Fast forward three decades. In early 2008, worried creditors       stopped lending to investment house Bear Stearns and pulled their       money out, leading to its collapse. The government then helped       JPMorgan Chase acquire it on very favorable terms. In September,       Lehman Brothers crashed. By October, the stock prices of Bank of       America, Citigroup, Goldman Sachs, Merrill Lynch, Wells Fargo, and       JPMorgan had plummeted, their balance sheets were in tatters, and       the entire industry's short-term outlook was grim. Unable to raise       money in the private markets, they too went hat in hand to the       federal government. But there was no "Bush to Banks: Drop Dead."       Quite the opposite. Treasury Secretary Henry Paulson, a former       head of Goldman Sachs, invited them in to collect their cash. As       Simon Johnson, a former IMF chief economist, tells us, "Not only       did the government choose to rescue the financial system–a       decision few would question–but it chose to do so by extending a       blank check to the largest, most powerful banks in their moment of       greatest need." We had arrived at the total inverse, the       culmination of a process begun in the 1970s.
     
To understand how we got here, we need to take a look  again at the 1970s: not the cultural malaise ’70s, or the backlash  ’70s, but the economic ’70s. The 1970s have been viewed through the lens  of the 1960s, and thereby defined by the reverberations of its culture  wars. But as Judith Stein argues, the 1970s can’t just be seen as the  result of a shift in national mood or strictly as a cultural phenomenon.  At the heart of Pivotal Decade is a question we should be asking now:  “Why did the nation replace the assumptions that capital and labor  should prosper together with an ethic claiming that the promotion of  capital will eventually benefit labor–trading factories for finance–a  very different way of running a nation that produced very different  results?” The 1970s were the years in which American investment in the  productivity of its enterprises dropped and political leaders and their  advisers reoriented policies toward wealth rather than capital  formation. And as the financial crash of 2008 and persisting Great  Recession have made clear, creating wealth is not the same as creating  prosperity.
 
Stein, a professor of history at City University of New York, offers a  story of structural economic change, chronicling a shift in the balance  of power that led Democrats as much as Republicans to displace  employment-focused New Deal policy with a politics of fighting inflation  focused on maximizing investment returns. The inflation and  unemployment that began climbing in the early 1970s were not the result  of mere cyclical downturns. Manufacturers like General Instrument,  Bendix, Caterpillar Tractor, and RCA disinvested from factory towns in  the United States and turned to Europe, Mexico, and East Asia; banks  invested in shipyards, steel mills, and chemical plants from Brazil to  Korea. While American productivity sank, Europe and Japan dramatically  increased manufacturing, productivity, and exports. Keeping its market  closed and charging high domestic prices, Japan began to sell goods to  the American market below their domestic price. For geostrategic  reasons, Presidents Nixon and Ford were willing to allow the United  States to be the market of first and last resort for the rest of the  world, propping up an overvalued dollar to make sure Americans would buy  imports. Consequently, American exports became harder to sell,  producing the country’s first trade deficit since the 1890s. Yet few  seemed concerned about what these policies meant for those who produced  goods in the United States–that is, for American workers.