Wednesday, January 8, 2014

Book Review: Alan Greenspan’s The Map and the Territory

Alan Greenspan’s book The Map and the Territory-Risk, Human Nature, and the Future of Forecasting delves into the intricate nature of the economy and his life lessons on economic management. He discusses the nature of human decision-making as animal spirits, how uncertainty impacts choice, productivity as a measure of performance, and the advent of globalization. The book provides a general overview of the nature of the economic systems and the knowledge he has accumulated from it.

For those who are in higher education they will appreciate the section on Education’s Gini. In the old days, professors worked with a few hundred students but online education is about to make the super professor. These are the professors that reach out and touch thousands of students at one time. The industry is in the process of making its way into the mainstream and developing new technology.

Of course, the age old problem of variability in human behavior has not been resolved. Alan Greenspan is amazed at how these animal spirits have been defined by regression analysis and human actions are very much closer to being refined for economic analysis. If we were to develop better economic models that include the animal spirits along with economic modeling we will have better projections for development.

In particular his call for the restructuring of American’s infrastructure makes sense in light of recent changes. Our excessive debt has damaged short-term spending and long-term productivity while not leaving enough to fix our antiquated system.  Roads have not kept up with the cars and the ecological efficiency of potential technology has not been fully exploited.  We are patch working an older system without embracing the new.

He further goes on to discuss the nature of macro-forecasting and how it has grown in influence.  In the distant past the process of forecasting was a private affair among business people trying to reduce risk. The age of big data is coming on us and those who can master this data are more likely to be successful. The end of WWII and Keynesian economic explanations helped solidify this trend.  Today’s data makes it a reality.

The book is interesting in a number of ways and there is much to gather out of it. Like Alan Greenspan, I agree that the time when an overhaul of our economic system is likely. With rising income disparity, technology development, and big data analysis the need to tie people to the system is even more important for international competitiveness. A time may soon come when government becomes more transparent with data, investment risk is reduced through better information, and people are tied to the system through innovative entrepreneurship both in their own and within other’s companies.  Education will need to change to help ensure that the high technological skills, innovative spirit and developed analytic skills will be available. Infrastructure will need to tie people together in ways not seen at any time in history in order to create a better pipeline of transformational products and services.

Greenspan, A. (2013). Map and the Territory-Risk, Human Nature, and the Future of Forecasting.  NY: Penguin Press.

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