The Map and the Territory: Risk, Human Nature, and the Future of Forecasting

In his new book, Greenspan (former Federal Reserve chair, 1987–2006; The Age of Turbulence) expresses dismay at not predicting the 2008 recession and offers suggestions for improving economic forecasting and revising government financial interventions and regulations to prevent future economic chaos. In the realm of predictions, he devotes a chapter to the field of behavioral economics, which finds foreseeable patterns to humans' economic irrationality. As a conservative, Greenspan decries government expenditures on companies deemed "too big to fail," seeing their rescue as a slippery slope to favoritism and state ownership. Likewise, he portrays Social Security and other benefit programs as encouraging dependency on government, discouraging appropriate levels of domestic savings, and redistributing wealth from capital investment to consumption. However, he does come to see that some regulation is required, suggesting that banks be held to below the "too big to fail" size, or that they be obliged to maintain adequate capital buffers. Although Greenspan occasionally does not cite his exact source, most of his arguments are illustrated with exhibits, charts, and data tables, many of which appear in appendixes to keep the text readable.