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February 28, 2010
David Warsh, Proprietor


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Sour Sixteen

Here’s a relatively light-hearted way to tackle the question of what caused the macroeconomic mess of 2008 and 2009.

Allen Sanderson is a familiar figure on the campus of the University of Chicago, a lecturer in economics and a prolific popular writer, especially on the economics of sports. Last summer the university magazine asked him to make some sense of the many competing explanations for the financial crisis.

Adopting as a metaphor the annual NCAA basketball tournament, he came up sixteen competitive factors judged to have contributed to the global financial crisis and matched them up as in the graphic below. A few months later the American Economic Association printed the brackets in the program of its annual meeting and invited members to vote for their regional favorites and for a national champion.

The outcome is depicted here:

market_madness_bracket_sm11

For a description of the various teams, and a sense why voters concluded that the Hazards edged the Watchdogs in the tournament final, click on the graphic. The game may not yield much real information, but it’s a good exercise, a fine example of economists at play.

EP, meanwhile, continues work on its own explanatory tournament, reading through the accumulating stacks of books and papers. Nothing heavy-hearted about that, but it does take time – EP’s to write and yours to read.

This week the topic was to have been financial innovation. Even from a comparatively narrow angle, there was more new material than EP could digest. But that’s where we’ll resume next week.

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To reach the proprietor, ask a question about the website or report a problem email warsh@economicprincipals.com.