Mike Konzcal reviews Lost Decades by Menzie Chin and Jeffrey Friedan at New Deal 2.0:
What caused the housing bubble?
This is a different, though related, question from what caused the collapse of the financial sector or why unemployment is sky-high right now. Why did housing value skyrocket and then collapse? More broadly, why did all kinds of consumer debt expand so greatly over the past decade?
there’s another argument, which looks at the explosion of international lending and the indebtedness of the United States by foreign investors. Normally capital runs from rich countries to poor countries, but something changed where it reversed as capital went rushing to the United States. This exposed the United States to the same kind of risks developing nations usually face. And the new book Lost Decades by Menzie D. Chinn and Jeffry A. Frieden, economists at the University of Wisconsin, Madison and Harvard, is the best book-length treatment of this argument.
Menzie Chin writes about Lost Decades at Econbrowser:
…Jeffry Frieden and I conclude in our book, Lost Decades:
America’s prosperity requires fiscal responsibility. The phrase “fiscal responsibility” has been used so much that it is something between an obligatory buzzword and a code word for cutting government spending. In our view, true fiscal responsibility involves a willingness to raise sufficient tax revenue, over the longer term, to pay for the programs the government implements. Fiscal responsibility should not be equated with a small government, but rather with a commitment to pay for the government services provided. If the nation affirms that enhancing national defense and improving health care for the poor are legitimate goals, fiscal responsibility entails raising the revenue to fund these programs, rather than borrowing for them.