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

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. (Sept.)