UW-Madison's Menzie Chinn and Harvard's Jeffry Frieden see the Great Recession as the result of excessive borrowing and spending by the average American as well as the federal government. Our borrowing binge was emulated by other nations, resulting in a global economic downturn. The authors locate the roots of the crisis in Reagan's scheme to cut taxes and borrow from foreigners to make up the difference. His advisers assumed that economic expansion spurred by low tax rates would eventually increase federal revenue, but they were wrong. Although the Reagan cuts drove the deficit to new heights, facts have never gotten in the way of fanatical ideologues who continue to push for more cuts. As the authors persuasively argue, American policy-makers must begin to learn from the lessons of history, lest the United States enter a long period of economic stagnation.
