American Economic Policy, as told by Martin Feldstein at Harvard University: Lecture 10, Preventing and Responding to Financial Crises

“Good morning, our subject today is financial crises and policy responses. I’m going to focus mostly on the crisis of 2008, which seems like it has been going on forever.”

So begins Larry Summers in addressing the students attending the 10th lecture of the course “American Economic Policy” that he is co-teaching with Marty Feldstein and others.

“It was a scary moment and had substantial consequences. The US gross domestic product dropped by 10%, and today is estimated to be 10% lower than would be predicted by the pre-crash trend. That’s $1.7 trillion a year, or $20,000 for the average family of four. Unemployment reached highest level since the depression: 10% in the aftermath of this event, and even today there are several million more people unemployed or out of the labour force as a result.”

What I would like to do today is the most basic economics behind a crisis of this sort, and in the next lecture I give to use it to talk about policy responses to crises.

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