Masazumi Wakatabe have written the best book to date on the Japanese economic crisis and Shinjo Abe's campaign to resolve it. Grounded in economic history and the history of economic thought and bristling with facts and figures, it deserves a wide audience among Japan specialists and general readers alike.

Wakatabe provides a compact but remarkably comprehensive summary of Japanese economic history from the mid-1980s to 2014 in a scant 150 pages. Following a short introduction, Chapter 2 describes Japan's ‘Thirty Years’ Economic Crisis’ (recalling, whether consciously or not, Europe's Thirty Years’ War from 1618 to 1648). Chapter 3 considers next Japan's ‘Thirty Years’ Intellectual Crisis’, where Wakatabe recounts how the crisis was perceived and interpreted by analysts and officials and explains how those perceptions and interpretations shaped the policy response. Chapter 4 lays out the parallels between that policy response and the Takahashi-Korekiyo-led response to Japan's Great Depression, arguing that the reluctance of modern-day policy makers to embrace a more activist response should be understood as a reaction against the perceived excesses of the 1930s. Chapter 5 turns finally to Abenomics, explaining how Singzo Abe and Haruhiko Kuroda broke with orthodoxy. The concluding Chapter 6 draws out the implications for the United States, Europe, and, prospectively, China where economic growth is now seemingly at risk and, absent a concerted policy response, the economy may succumb to a long period of stagnation.

Throughout, Wakatabe emphasizes the power of ideas in explaining policy responses and their effects. The 1930s, having given rise to inflation, militarism, and other unfortunate outcomes, led to a reluctance on the part of modern-day policy makers, conscious of that history, to respond to the 1990s crisis by depreciating the exchange rate and adopting policies of demand stimulus like those pursued by Takahashi in that earlier crisis. In Japan, then experiencing a supply-side ‘miracle’ in the third quarter of the twentieth century, there was an instinctive tendency to perceive the economic crisis of the fourth quarter in terms of supply-side problems and therefore to prioritize structural reform over demand stimulus. Keynesian ideas, which might have lent intellectual support to demand-side measures, such as currency depreciation and monetary expansion, never found a firm footing in Japan, where academic economists came from a Marxist background and officials were fixated on boosting supply. As a consequence, monetary and fiscal policies to counter the slump were sporadic and inconsistent. The result was 30 years of stagnation until the Japanese public finally lost patience and installed an Abe government committed to a different approach and with the capacity to finally end the crisis.

This is a powerful argument that derives much of its power from its parsimony. But if this single-minded emphasis on ideas is the strength of Wakatabe's narrative, it is also its weakness. For every political analyst who emphasizes the importance of ideas in shaping policy outcomes, there is another who analyzes the importance of interests. Japan was slow to resolve its banking crisis, the latter would argue, because powerful financial interests with close connections to government could lobby against closing down insolvent financial institutions. Opposition to inflation was effective because a large elderly population on fixed incomes was able to make its objections heard, even more loudly than otherwise, given the peculiarities of the country's electoral system. Whether intentionally or not, Wakatabe's emphasis on ideas causes interest-group politics to get short shrift.

Wakatabe's analysis also runs up against the problem that, to paraphrase Sir Walter Raleigh, those who follow too close on the heels of history risk getting kicked in the teeth. Writing in August 2014, Wakatabe concludes that Abenomics has successfully vanquished deflation and brought an end to the long period of stagnation. But the fact of the matter, more than a year later, is that it is still too early to declare victory. The Bank of Japan may have succeeded in depreciating the yen, but it continues to undershoot its inflation target. The Japanese economy shows signs of stabilization, but its growth remains at best halting.

Finally, as a result of grounding his analysis in Japan's experience in the 1930s, Wakatabe may be inadvertently overlooking important differences between then and now. In the 1930s, the dominant problem was undoubtedly deficient demand, and the solution was Takahashi's currency depreciation and fiscal stimulus. Deficient demand is similarly a problem now – deflation is incontrovertible evidence of the fact – but Japan's current stagnation is further compounded by problems on the supply side. Hence the importance of Abe's ‘third arrow’, emphasizing deregulation, women's labor-force participation, and related structural reforms. Deriving his perspective from the experience of the 1930s, the author is perhaps too quick to minimize the relevance of the third arrow.

None of this is to diminish the value of Wakatabe's book. The global financial crisis, like Japan's great stagnation, is a reminder that macroeconomic analysis needs to be informed by economic history and the history of economic thought. Japan's Great Stagnation and Abenomics is a textbook example of how this should be done.