The kind of economic trouble that Asia experienced a decade ago, and that we're all experiencing now, is precisely the sort of thing we thought we ha… - Paul Krugman

Why did the magic economy go away? Hundreds of books have been written on that topic. This isn't one of them ― although I'll devote part of a chapter to some plausible stories and take a number of stabs at the issue along the way. But let me cut to the chase: the real answer is that we don't know. There are a lot of stories out there. Most of them, including the ones that have achieved the widest currency, are dead wrong on logical or factual grounds. There are some less popular stories that could be right ― but if you are honest with yourself, you will admit that nobody, yourself included, knows which if any of these stories actually is right.

As is often the case with major disputes in economics, the argument over fiscal policy went on for years, with some critics of fiscal policy still defending their position when this book went to press. It seems fair, however, to say that among economists a more or less Keynesian view of the effects of fiscal policy came to prevail. Careful statistical studies at the International Monetary Fund and else where showed that austerity policies have historically been followed by contraction, not expansion. Recent experience, in which countries like Spain and Greece that were forced into severe austerity also experienced severe slumps, seemed to confirm that observation. Furthermore, it was clear that those who had predicted a sharp rise in U.S. interest rates due to budget deficits, leading to conventional crowding out, had been wrong: U.S. long-term interest rates remained near record lows even during the years from 2009 to 2012, when the government ran very large deficits.

If there is one single area of economics in which path dependence is unmistakable, it is in economic geography – the location of production in space.