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Lal begins by examining the major reason purported for the current crisis based on so called “global imbalances”, which he argues is mistaken, before going on to a major structural change in the US financial system (still disputed) and to list the commonly agreed policy errors which led to the crisis. He then discusses, first, the alternative theoretical frameworks which provide a diagnosis of the crisis, and the errors of omission and commission of the monetary authorities which led to the crisis as well as assessing their response in its aftermath, and, second, the fiscal and regulatory responses to the crisis and their consequences. This leads on to the basic underlying cause of the crisis which is similar to that found in many developing countries—the creation of unsustainable entitlement economies. He ends with what a classical liberal response would be to prevent or mitigate such crises in the future.
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