We do not claim to fully understand why alternatives were not chosen. It is a question that calls for serious consideration because in addition to its serious debilitating consequences for the American economy, we now face the same choices, and it is not at all clear that we will do differently or better.
The two of us do not fully agree in our reactions to Simon Johnson's tidy explanation. One of us finds that In "The Quiet Coup" Johnson attributes this to straight-forward political capture: finance was a politically-powerful value-subtracting industry in America in the 1990s and 2000s and used its political power to warp public policy to redistribute resources toward it. As a result, a great deal of American economic growth in the 1990s and 2000s is immiserizing.
Simon is thus thinking like an IMF honcho confronted with a country that deeply needs a structural adjustment program.
There are, however, three problems with his interpretation. The first is that it is not obvious what subsidies need to be removed. The second is that the U.S. political system does not need IMF financing and hence cannot be ordered around by the technocrats of Nineteenth Street. The third is that Simon's story seems to us to be too pat and too simple--it's not just a Mancur Olson-like special interest-capture political-economic sclerosis a la Mancur Olson (1984), The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities (New Haven: Yale), but something more complex that we at least do not claim to fully understand.
The other agrees that something more complex was --- and is -- at play, but holds back from dismissing the argument, in its entirety, or even in detail.