Earlier this month, the American Economic Association hosted its first Teaching Economics and Research in Economic Education conference. Stanford economist John Taylor was among the speakers.  He spoke about how the financial crisis changed his approach to teaching economics.  He noted that how one teaches economics post-crisis depends on one's view of the crisis--its causes, its impact, and the impact of government policy pre and post-crisis.  Taylor:

In my view the problem was that economic policy deviated from basic economic principles which had worked well. The result was a great recession, a financial panic, and now a very weak, nearly nonexistent, recovery. The deviations included a monetary policy which set interest rates too low for too long and a regulatory policy which failed to enforce existing rules. The deviations from sound principles continued when government responded with an ad hoc bailout process and temporary fiscal stimulus programs. The good news for the economy is that economic growth and stability can be restored by adopting policies consistent with basic economic principles.

The good news for teaching is that the crisis has left us with many examples where teachers can illustrate basic economic principles including that incentives matter, the permanent income hypothesis, regulatory capture, and the money multiplier. Moreover, the heated disagreement among economists about the crisis presents another opportunity to make the subject more interesting to students.

The AEA has made the slides from Taylor's talk available online.  For example, Taylor shares this slide as an example of how to illustrate the importance of incentives:

Access all the slides from Taylor's talk and from talks by Vernon Smith and B. Douglas Bernheim here.