Chapter 6

Surprise Bailouts

What if I’m Wrong?

In 1989 Yale historian Paul Kennedy published The Rise and Fall of the Great Powers.1 For a work that was primarily historical, it elicited great controversy, because it predicted that the American leadership position among nations would erode, at least on a relative basis. From a historian’s perspective, this forecast seemed indisputable: hegemonies are impermanent, as this book has confirmed. At the time, Japan was the rising power: its lower cost of capital and apparently invincible industrial policy fostered companies that produced goods—cars, electronics, appliances—better and cheaper than Western competitors. And the Soviet Union had been a rising military threat less than 10 years earlier. ...

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