In the Aftermath of the Financial Crisis of 2008: What Have We Learned?

In the aftermath of the financial crisis and economic recession of 2008, it is important to reflect not only on its causes, but also on specific policies that can help countries to move towards sustained economic growth. This publication provides a compendium of lectures that intend to do this. The focus of the discussion is around the U.S. (first two chapters) and Latin America (last chapter), which enhances our understanding of the forces at play and the necessary policies that need to be implemented in different regions of the world. Dr. Lee Ohanian points to the strange differences between the U.S. recession and other recessions around the world. The problems in the U.S. markets arose from misallocations of labor, rather than falling productivity around the world. His conclusion is that the data show that these errors were caused by policy, not a misshapen financial sector. Next, a case for the misalignment of the recession and the beginning of the financial crisis is made by Dr. Scott Sumner. The recession fueled the financial crisis, and not the other way around. While there was a misallocation of resources brought about by bad policy, smoother roads will be found when all, including policy makers, take the Efficient Market Hypothesis more seriously. Dr. Sumner concludes that a forward looking monetary policy approach is needed. Finally, Álvaro Vargas Llosa gives a perspective of the effects of the recession in Latin America. While many have suffered, the region has done relatively well in terms of growth in comparison to other previous financial crises. However, this growth might prove ill-timed if it encourages bad policies to continue in some countries. He recommends specific policies for the region to avoid the mistakes from the past and provides a course of action for U.S.-Latin America relations