The Map and the Territory: Risk, Human Nature and the Future of Forecasting, by Alan Greenspan, review
“I don’t know how significant or permanent it is,” he announced, “but I’ve been very distressed by that fact.” At the time, it was seen as mealy-mouthed. Greenspan had been the chairman of the Federal Reserve for 18 years, the man who oversaw the long boom and created the conditions for the great bust – and all he could confess to was a “flaw”?
But, in fact, he was saying precisely what he meant. Since starting work as an economic analyst in 1948, Greenspan has devoted his career to developing models that explain what the American economy is doing, and how it can do it better.
The guiding principle of his work – as befits the most famous disciple of Ayn Rand – is that state intervention is bad, and untrammelled capitalism good.
The financial crisis, therefore, was not just a personal humiliation. It represented a challenge to Greenspan’s intellectual certainty. So he has buried himself away, poring over the data, trying to improve his forecasting models. His holy grail is to find a way to incorporate “animal spirits” – the pesky, irrational sentiments of ordinary human beings – into such models and ensure that we have a better early warning system for disasters like 2008. The result is that most curious of creations: a dusty economic textbook that reads like the obsessive musings of a grizzled ex-cop who can’t stop worrying away at the case he never quite solved.