Game of Theories: The Great Recession

There’s an old analogy about blind men grasping an elephant.

Elephants are huge creatures. If you’re touching the trunk, but you can’t see the whole elephant, you’re going to have a very different perspective from someone touching a leg. It doesn’t mean that either of you are wrong in your perspective; you’re just focused on different parts of the whole.

You can use this analogy when thinking about the business cycle theories we’ve explored in recent videos and how they can be applied to economic downturns. To grasp the elephant that is the Great Recession, for instance, we’d need to take into account these different perspectives.

In Game of Theories, we’ve covered the basics of what proponents of Keynesian, monetarist, real business cycle, and Austrian theories think about why economies go through booms and bust. We’ve also dealt with some of the shortcomings of each.

Now let’s turn to how they might explain a recent historical example: the Great Recession of 2008.