After the changes in the seventies and eighties described in the introduction, all this changed. Corporate taxes were slashed. Executives, whose compensation now increasingly took the form of stock options, began not just paying the profits to investors in dividends, but using money that would otherwise be directed towards raises, hiring, or research budgets on stock buybacks, raising the values of the executives’ portfolios but doing nothing to further productivity. In other words, tax cuts and financial reforms had almost precisely the opposite effect as their proponents claimed they would.
