Lost Decades: The Making of America's Debt Crisis and the Long Recovery

Overview

The U.S. economy lost the first decade of the twenty-first century to an ill-conceived boom and subsequent bust. It is in danger of losing another decade to the stagnation of an incomplete recovery. How did this happen? Read this lucid explanation of the origins and long-term effects of the recent financial crisis, drawn in historical and comparative perspective by two leading political economists.

By 2008 the United States had become the biggest international borrower in world ...

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Lost Decades: The Making of America's Debt Crisis and the Long Recovery

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Overview

The U.S. economy lost the first decade of the twenty-first century to an ill-conceived boom and subsequent bust. It is in danger of losing another decade to the stagnation of an incomplete recovery. How did this happen? Read this lucid explanation of the origins and long-term effects of the recent financial crisis, drawn in historical and comparative perspective by two leading political economists.

By 2008 the United States had become the biggest international borrower in world history, with more than two-thirds of its $6 trillion federal debt in foreign hands. The proportion of foreign loans to the size of the economy put the United States in league with Mexico, Indonesia, and other third-world debtor nations. The massive inflow of foreign funds financed the booms in housing prices and consumer spending that fueled the economy until the collapse of late 2008. This was the most serious international economic crisis since the Great Depression of the 1930s.

Menzie Chinn and Jeffry Frieden explain the political and economic roots of this crisis as well as its long-term effects. They explore the political strategies behind the Bush administration’s policy of funding massive deficits with foreign borrowing. They show that the crisis was foreseen by many and was avoidable through appropriate policy measures. They examine the continuing impact of our huge debt on the continuing slow recovery from the recession. Lost Decades will long be regarded as the standard account of the crisis and its aftermath.

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Editorial Reviews

Publishers Weekly
In this important book, which deserves to be widely read and debated, political economists Chinn (The Economic Integration of Greater China) and Frieden (Global Capitalism) argue that the 2007-2009 world financial crisis was made in America, because the U.S. ignored advice about indebtedness that it had given to other countries over the years. The time has now come for Americans to accept the implications of this situation and discuss it with other governments. In Chinn and Frieden's view, it is not debt per se, but what the debt is used for, that is key. They provide historical evidence to support their claim that if debt is invested by the government and private industry to raise profitability, then it is not problematic. This has not been the case in the recent past. Instead debt was used to create a speculative bubble, which led to what the authors call the bankruptcy of the financial system. They make the powerful case that the $12 trillion bail-out of the busted banks has been wasted. Absent a multi-trillion employment and investment program, there are very tough times ahead.
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Jon Rosen - USA Today
“An invaluable resource in a time of great uncertainty. Intelligent yet accessible to non-experts, [it] fills a valuable niche in a debate often dominated by ideological talking heads who thrive on popular anger and drain the political system of sensible dialogue.”
Occupy Wall Street Forum
“An excellent read. [Chinn and Frieden] anticipated a movement like Occupy Wall Street.”
USA Today
An invaluable resource in a time of great uncertainty. Intelligent yet accessible to non-experts, [it] fills a valuable niche in a debate often dominated by ideological talking heads who thrive on popular anger and drain the political system of sensible dialogue.— Jon Rosen
USA Today - Jon Rosen
“An invaluable resource in a time of great uncertainty. Intelligent yet accessible to non-experts, [it] fills a valuable niche in a debate often dominated by ideological talking heads who thrive on popular anger and drain the political system of sensible dialogue.”
Nouriel Roubini
“Through pointed historical and comparative illustration, the authors show how financiers, politicians, and ideologues ushered in the crisis, and highlight the challenges we must overcome to avoid another lost decade.”
Simon Johnson
“An integrated and compelling account of where our debts came from – and why they won’t go away any time soon. Chinn and Frieden combine the smartest kind of economics with the toughest kind of political science. Read this book for a somewhat disheartening but completely enlightening education – and then send 10 copies to the White House and Capitol Hill.”
Raghuram G. Rajan
“This wonderful book by two leading political economists identifies the roots of the recent financial crisis and the deep recession that followed, but more important, tells us what awaits us if we do not fix the underlying problems. It is political economy as it was meant to be - accessible and concise, even while deeply troubling.”
Dani Rodrik
“You will not read a better political-economic synthesis of America’s financial crisis than this book.”
Ernesto Zedillo
“An intelligent, vivid, and accessible account of the first great crisis of the 21st century. Drawing on comparisons that will bother recalcitrant believers in American economic exceptionalism, the authors depict a gloomy panorama for the years to come unless policy makers get serious about fiscal reform. This is a must-read for the expert and the layman alike.”
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Product Details

  • ISBN-13: 9780393076509
  • Publisher: Norton, W. W. & Company, Inc.
  • Publication date: 9/19/2011
  • Pages: 284
  • Sales rank: 605,129
  • Product dimensions: 6.30 (w) x 9.30 (h) x 1.10 (d)

Meet the Author

Menzie D. Chinn teaches at the University of Wisconsin, Madison, and runs the influential blog Econbrowser.

Jeffry A. Frieden teaches at Harvard University. He is the author of Global Capitalism: Its Fall and Rise in the Twentieth Century, and the co-author of Lost Decades: The Making of America’s Debt Crisis and the Long Recovery.

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Table of Contents

Figures ix

Preface xi

Acknowledgments xvii

Chapter 1 Welcome to Argentina: How America Borrowed Its Way into a Debt Crisis 1

Chapter 2 Borrowing, Boom, and Bust: The Capital Flow Cycle 28

Chapter 3 Risky Business Models 57

Chapter 4 The Death Spiral 87

Chapter 5 Bailout 120

Chapter 6 Economy in Shock 146

Chapter 7 The World's Turn 175

Chapter 8 What Is to Be Done? 201

Chapter 9 Conclusion 222

Notes 227

Index 263

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