Dan Ariely, alleged fraudster

I've read several books by Dan Ariely, and came to appreciate him as the seeming dean of a younger generation of behavioral psychology researchers, standing on the shoulders of giants like his mentor, Dan Kahneman and Danny's collaborator, Amos Tversky.

I'd even referenced him in an newspaper column about 18 months ago in the early days of coronavirus, specifically citing his "Predictably Irrational." Extended thoughts in that vein are here. A non-Goodreads/Amazon review is here.

The one book of his that I have reviewed at Goodreads is ...  wait for it below ...

And, now, he has been accused of research fraud. And, if this finding is correct, simple and childish research fraud. (For a deeper dive, here's the blog, with the particular blog post, that first discovered this.)

"WHY?" comes immediately to mind.

My best guess is that he'd gotten himself up a creek without a paddle on some previous claims, hitting the rapids or even the full waterfall version of Replication Bias, and decided to fix things.

But, really? Just adding numbers to a column in an Excel spreadsheet? Wow.

There's also a fat-assed Irony Alert. The allegedly fraudulent research was used in a 2012 co-authored paper about ... 

HOW TO REDUCE DISHONESTY!

And, that one book of his I reviewed? "The Honest Truth about Dishonesty." AND, a paragraph of the review needs quoting:

He also notes that, short of sociopath types, while most of us cheat, most of us don't cheat that much. For instance, on matrix-completion tests where people are paid based on personal claims of number of tests completed? They'll claim to have done a couple of extra, but not double what they actually did.

AND AND AND!

The alleged fraud was in 2012. Guess what year that book was published. So, that just confirms things. He had said shit in the book that wasn't true, I presume, had now learned that it wasn't true, and was in CYA mode.

And, the #fail was indeed childish. Beyond just adding numbers to an Excel column, a different font was used for these new numbers. (Sadly, it was Calibri, then Cambria; no Comic Sans involved. That said, that's like a modern version of one of the classical manuscript errors. I most font sets, Calibri and Cambria are adjacent to each other in a scroll list; this is like a medieval scribe either skipping or reduplicating a word.)

And, it's not like Ariely was a scrubbeenie. He was a tenured prof at Duke; he'd taught there before and came back, per Wiki.

Beyond the link above? Story is now in the Economist, which also notes the 2012 hypocrisy squared book publication date. Wiki says he's asked for the paper to be retracted.

So, the "alleged" is in the title and the body only for purely legal reasons.

Per Proverbs?

"The guilty flee when no one pursues."

 

==

 

As far as his overall writings? "The Honest Truth about Dishonesty" is obviously trash. I assume that anything later also is. "Predictably Irrational" is enough earlier it may well be OK. But, maybe not. And, shouldn't we just start calling Ariely himself "Predictably Irrational"?

 

Since Ariely wants the paper retracted, after first tweeting Retraction Watch during the day yesterday, I posted a comment on their most recent post last night. It went into moderation, I guess because of the link. And, as of this afternoon, it had NOT posted. So, I posted a comment on their FAQ / comments policy page. And, it went into moderation.

Anyway, the story has now metastasized, whether Retraction Watch runs anything or not. Samuel Goldman, going beyond the replication bias, argues that what we have is a clear case of "star professor" sucking up the oxygen of grants, etc., and having incentive to Lather.Rinse.Repeat.

Manipulation to produce favorable results is exactly what behavioral economics would predict in this situation. So it's ironic that one of the leading practitioners of the field seems caught in a trap that his own ideas help explain.

Goldman also goes "there" with Ye Old Petard Hosting reference:

The solution isn't gimmicks like honesty statements. Reforming social science means changing funding and professional incentives that encourage dishonest behavior by concentrating rewards on the biggest names, most charismatic personalities, and splashiest arguments. In other words, the benefits enjoyed by Ariely himself.

Well, it's true!

And, backed up by the Daily Mail. (If they're doing a story, we're officially in dogpile time.) It says that one co-author expressed concern about the data at the time, but Ariely said "We're all good."

And, NEW shit has been dragged up. His Wiki page, newly updated, references an Israeli journal that says while Ariely was at MIT, without institutional review board approval, he used electric shock on participants in an experiment.

And, via the "fonts" link above, I don't need to be harshing Retraction Watch's mellow. It reported earlier this year about ANOTHER Ariely issue: a 2004 paper that got an "expression of concern."

 

BuzzFeed has a piece that documents more replication issues. And, per that, we probably should just cut to the chase and call Ariely an outright liar. Ariely is, indirectly, trying to blame the insurer for whom he did this study. But, he's done that in the past — until busted. In a study a little over a decade ago about dentists allegedly themselves not always knowing when a cavity is a cavity, when issues arose, he blamed Delta Dental. Problem? Delta said it had never given him the information he was talking about.

And, with all of this new information? The note of concern is for work from before Predictably Irrational was published. So is the unauthorized electroshock. So is the fake cavities research. So, we can't trust it, either, can we? And, personally, having referenced it in a column, this is kind of like a source going bad.

Per Goldman, academia is also very political, and I suspect some long knives have been laying in wait for Ariely, re why this is so popular. And, I think a lot of people have probably had suspicions for a long time. That said, will Duke put him on some sort of probation?

That said, maybe we should thank Ariely in a way. He's shown that, if the emperor of behavioral economics and psychology isn't totally naked, it's probably about as thinclad as that of evolutionary psychology. After all, others, including one of his aforementioned mentors, Dan Kahneman, have had their own replication problems (though they didn't make up data to try to hide that, as far as we currently know).

That said, outside of academia, through jobs like "chief behavioral officer" at Lemonade, he's been laughing all the way to the bank, and the statute of limitations for suits over some of this have certainly expired.

Top blogging in August

At No. 1 was an old one from 2018, highly relevant with last Sunday's Movement for a People's Party convention, and that is "Roses, sunflowers and red flags on Twitter." Roses being the DSA Roseys, ie, Berniecrats as today's Roseys, behind MPP, sunflowers being the Greens (which I am for now) and red flags being socialists, which I am of some sort, or communists, which I will never be.

Speaking of? No. 2 was "Fuck the Movement for a People's Party."

No. 3, from early in August, was "Georgia schools get an F on COVID after one week."

No. 4 is an old favorite, trending again: "Timothy Treadwell was really fricking nuts." And he was!

No. 5 is from just this last week, about The Three Sleezekeeters of Texas Gov. Greg Abbott, state Sen. Pat Fallon and state Rep. Drew Springer on the timing of a special election to fill Fallon's seat.

No. 6? One with personal relevance. I dissected Kroger's Kabuki theater PR bullshit over the coronavirus, masks, and "Kroger Andy" in Louisville. (I've started boycotting Kroger.)

No. 7? As I know professionally, because they're not going to save mail in general, No, FedEx and UPS aren't going to save mail voting.

No. 8 and 9 are related. No 8 is my discussion of "Coronavirus 2021 and beyond," starting with the fact that we WILL NOT have a vaccine both safe and effective by the end of this year.

No. 9 was this week's installment of my split version of the Texas Progressives roundup, looking at coronavirus, reinfection, Deborah Birx a Trump toady again, Stephen Hahn maybe starting to be, and much more.

No. 10? It's about how both L//l-libertarians and neoliberal Democrats refuse to recognize the fact that behavioral economics undercuts their economic ideas base.

Libertarians AND neoliberals versus behavioral psychology and economics

Reason magazine, the closest thing to a "house organ" for small-l libertarians and read by many in the party as well, is "interesting." But not interesting enough to sniff my blogroll.

I'd say I'd largely agree with 15 percent of what it rights, fairly agree with 25 percent, fairly disagree with 35 percent, and think 25 percent is batshit. And the same person can write in all four categories.

Take Radley Balko, a great guy on things like police brutality and militarization.

But, also one of those libertarians who believes on many issues that "the lawsuit is the answer for everything."

Like DWI checkpoints. He has in the past called for them to be abolished on the grounds that they violate civil liberties AND that the threat of lawsuits is a deterrent.

Dude? There is SO much wrong with this.

First, to the degree that driving is a right and a privilege, it's not an absolute.

Second, to the degree that even libertarians will admit the state has public health regulatory rights (tho many libertarians are wingnuts on masks, shutdowns, etc. on COVID), driving is surely one of those. Just as the rights of your fist (or your germy cough) end at my nose, even more so, your rights behind the wheel of two tons of metal end when you're on the same highway as me.

Third, lawsuits don't bring dead people back to life.

Fourth, re the War on Drugs, alcohol is deadlier than any illicit drug.

Fifth, the biggie for purposes of this blog post?

Libertarians refuse to wrestle with, let alone actually consider, the implications of behavioral psychology and economics for the false idea of Homo sapiens economicus as a rational actor. No surprise, though. From what I can tell, they fail to consider that Adam Smith's "invisible hand" comes from his Enlightenment Deism, even though there's proof on Smith's pages, and that said Enlightenment Deism has had things like quantum mechanics "put paid" to it.

But, neoliberals are problematic, too. With them, with the likes of Cass Sunstein, it's been an overeager, uncritical, still capitalism-based acceptance of the interlocked disciplines.

Sunstein has never asked whether a capitalist nudge is the best way — as in either the most productive or the ethically best way — to actually effect long-term changes in behavior. Ditto in spades on whether it's the best way to effect changes that work well within long-term societal, not just individual, needs.

Lottery: Take the cash option after all, especially in times of currently low inflation

This is an instance of a case where behavioral economics and behavioral psychology, exemplified in a book like Dan Ariely's "Predictably Irrational," can actually guide you to the wrong decision. (This isn't the only case. You'll see frequent claims that on pre-packaged foods, the larger size always will have the lower per-ounce price. If you check the shelving stickers, you'll find that is not true.

Back to where we were at, though.

Per the picture at left, and simple math? I can tell you that, at least right now, you should take the cash option on a lottery.

That's $30 million in inflationary adjustment for the annual payments. And, $30M divided by $115M is? 26.1 percent.

BUT, that's over 30 years!

Gotta divide again by 30.

Real answer? 0.87 percent. Yeah, it was that low in 2014 and 2015, but it's been almost twice that much every other year since the Great Recession. (More on inflation rates of the past century-plus, including monthly rates, here.) And, actually, the real answer isn't even 0.87 percent, because I didn't want to do the extra work of allowing for compound interest.

A quick teh Google to this site and dropping in the numbers of 115 and 30 years, then playing with percentages? It's actually 0.77 percent, compounded.

Uh, 2008 and 2015 are the only years since 1955 to have annual inflation rates below that.

Take the cash option.

And, if you win? Spare a brother a dime, or 0.775 percent?

Like food companies playing on a not always true truth, maybe lottery companies are doing this.

Or maybe they're banking on the post-coronavirus economy being that crappy for that long.

If THAT's the case, and actuaries are telling them that, you need to be doing other things. Maybe I do, too.

#Fahrvergnügen, meet #BlueBell

With Volkswagen CEO Martin Winterkorn officially stepping down, I think there's parallels between his company and the American ice cream maker.

Per the link, and per my blogging about Blue Bell, as here, too rapid of expansion is what likely led to corner-cutting at both places.

(More here on Volkswagen's being driven by Ed Abbey's "theology of the cancer cell," growth for growth's sake.)

And, it should be a warning to we the consumer not to buy stuff from such companies.

There's another parallel of sorts. Volkswagen is public, Blue Bell private. But, both Winterkorn and Kevin Kruse seem to be very sharp at board politics. Per the behavioral economics tag, boardrooms, it would seem, aren't very rational.

And, some slogans?

"Listeria: It puts the 'l' in 'Blue Bell.'"

"Fahrvergnügen: It's German for 'cheating pleasure.'"

That's especially true now that we learn, as I heard on the radio this morning, that renowned German auto parts maker Bosch reportedly warned VW back in 2007 not to try cheating EPA tests. Shades of Blue Bell, indeed.

And, yes, just like Blue Bell listeria helped kill a few people, so did VW smog.

Let's have the Oscar voters do the Nobels, and vice versa

Given some of the recent Nobel Prize awards, it can't be a bad idea.

On the Peace Prize, among recent winners, President Obama was a clearly political choice, and hindsight makes clear he's not all that peaceful. Ellen Johnson Sirleaf and Leymah Gbowee, among 2011 laureates, aren't all the European-American foreign policy consensus cracked them up to be.

The European Union last year was iffy, and it's too soon this year on the UN chemical weapons agency.

Add to this the ridiculousness of this year's Economics Prize winners, whose award is justly and thoroughly sent up here. Besides what the author says, about even Milton Friedman rejecting Eugene Fama's ideas, and adding Robert Schiller as a recipient when he actually significantly undercuts Fama to serve as a "hedge," the Great Recession obliterated Fama's thesis.

Indeed, Schiller attacks Fama here:

"The efficient markets (theory) assumes that everyone is smart all the time -- and that's just wrong,'' he said.

Oops!

And worries about a new round of irrationality here.

What really drives economics? If anything, it's greed, not rationality, per Schiller.

Beyond that, behavioral economics, from Daniel Kahnemann (a previous Nobelist!) and Dan Ariely to many others, has undercut rational-market ideas, even though the Economics Prize committee explicitly claimed otherwise in its award.

And, beyond that, quantum theory, World War II, the Holocaust and much more have put paid to Enlightenment-era ideas of rational human nature in general.

The Economics committee said in its announcement that its focus was on asset prices. Well, given that Schiller largely refuted Fama, why did he even get a share of the award?

I mean, there have been occasional controversial prizes in the past, but the Peace Prize committee has been more off than on for several years now. And, speaking of Friedman, the Prize in Economics has certainly had its past controversies.

Thinking, fast and slow (and often irrationally)

Thinking, Fast and Slow by Daniel Kahneman

My rating: 5 of 5 stars


An excellent summary of what's the latest thinking and findings in the worlds of behavioral economics, behavioral psychology and related areas.

Kahnemann shows that, and more importantly, how and why, we don't always know what will make us happy, how long it will make us happy or how much it will make us happy.

Other than showing how we don't know ourselves very well, he also shows how we don't act rationally around money and financial issues. The primary reason for this is loss aversion, which carries over into non-financial decisions.

The basis for this? We're really "two personalities," he says, based on long work of him and his peer, Amos Tversky.

System 1 acts fast, intuitively and largely unconsciously.

System 2 acts slow, with brain energy consumption, but rationally. However, it can get "lazy" at times, Kahnemann notes, in what should be a word of caution to scientists, skeptics of various stripes and others.

There's nothing new that's earth-shattering here. Rather, this is a "magnum opus" summary of Kahnemann's life work, along with that of Tversky, and connected to Robert Thaler, Dennis Gilbert and others in a younger generation of behavioral psychologists. It's valuable as that summary, though, valuable indeed.



View all my reviews

Why economics isn't even social-science scientific

It doesn't matter the school of thought, whether Keynesian, New Keynesian, neo-Keynesian Vienna School, Chicago School's tweaking of Vienna, or something brand new.

Most economics isn't even at the psychology or sociology level of social-science level of science. And, outside of the research-based behavioral economics, this is true for economics in general.

Take this Australian economist who claims that Keynesians of various stripes are wrong about how debt works in a fiat money society.

He's got interesting ideas. But, especially his three anti-Keynesian talking points at the end? They're not falsifiable. First, you can't falsify a whole society. Second, I don't think they're falsifiable even by computer simulation. Even using "falsify" more loosely than an ardent Popperian, they're really just not falsifiable.

Therefore, they're really not "theory," even in a loosely used sense of falsification. They're policy prescriptions. They're really statements of, "People should believe this about how debt works in a fiat money society."

And, thus, per Hume, with that "should," he's totally jumping the is/ought shark. But, it's not just him; as noted, my take is that most economics is not social-scientific science, but policy prescriptions.

In this particular case, I think they're some interesting policy prescriptions. But, they're not scientific.

Some are good. Others are somewhat straw men, like some claims about New Keynesianism, and, per Wikipedia, ignoring the links between modern monetary theory's roots and original Keynesianism.

Beyond that, here's some specific criticism of MMT.

The only way any macroeconomic theory can be close to scientific is to start by incorporating researched findings from behavioral economics.

At the same time, per Mitchell's blog, and per the main Wikipedia entry about MMT, it does appear at times to be generally "progressive" in its political stance, as noted here:

One commentator today noted that monetarism was neither right- or left-wing. I disagree. The whole edifice of mainstream economics – indeed its roots – are ideologically disposed towards what we call right-wing thinking. Modern mainstream economics is an extension of the marginalist school which emerged in the second half of the C19th to combat the fears the industrialists had about the growing popularity of Marxism.

However, in that same post, Mitchell lauds the Chinese for, in part, being free of democratic constraints. But, both it and New Keynesianism seem to assume too much about people's, or institutions', behavior as rational economic actors. And Mitchell assumes too much about the wisdom of China's leaders, to boot.

So, I think Krugman is right when he says MMT just isn't right. And, while it may not be right-wing, beyond being overly rationalistic, it is a monetarist policy.

Worrying good for your wallet? Or is this Pop Ev Psych

So says a member of the one school of economics that is actually scientific: behavioral economics.

True? Or maybe "ehhh"? Or even more problematic?

Research says good worrying can prevent dumb decisions, Robert H. Frank claims.

First, before I get to the meat of Frank's column, you have to love this quote:

The late Amos Tversky, a Stanford psychologist and a founding father of behavioral economics, used to say, “My colleagues, they study artificial intelligence; me, I study natural stupidity.”

And that's why behavioral economics is scientific; it doesn't start with the straw man of "Homo rationalis."

On the other hand, claiming that "the anxiety we feel about whether we’ll succeed (in finding an ideal job) is evolution’s way of motivating us" veers close to Pop Evolutionary Psychology.

Anxiety can fulfill that role; whether it evolved to do so, or the more ancient hominid equivalent thereof, is an entirely different question.

It stands to reason that some degree of anxiety produces a certain drive and focus. But, high-quality jobs as a Maluthusian-constrained "driver" of evolutionary change? Ahh, that's social/cultural evolution, not biological. And, if you look at the short length of human life since the development of civilization and ideas about jobs, differentiation of labor and private property, that doesn't seem enough time to be an evolutionary driver.

Then, there's this:

In every domain, people who work harder are more likely to succeed professionally, more likely to make a difference.

Well, Frank doesn't say if professional success equates to larger-life success. He doesn't talk about how the word "success," other than, in a simple evolutionary issue of "staying alive," is defined culturally.

And, there's yet other problems with Frank's column.

Per things such as happiness quotients, does job success, above a certain level, outweigh nonjob ennui, angst or even self-loathing? Or does it outweigh high blood pressure, obesity, alcohol or drug problems and other ways of trying to control this anxiety?

Also, it doesn't address genetic-based vs. societal-based differences in different people's baseline anxiety levels.

Nor does it address differences in acceptable vs. unacceptable anxiety, etc. across cultures.

And, per various happiness quotients, it doesn't address how much job success, especially the monetary part, does or does not contribute to broader happiness.

Don't get me wrong; I love behavioral economics' scientific insight into matters economic. I just don't want it jumping the shark into the world of Pop Ev Psych. Or, the shark-jumping of lack of research and just-so of non-behavioral economics.

Let's just overbash behavioral economics

Neoclassical economists, especially theoreticians rather than empiricists, have very little room to stand to criticize alleged excesses and wrongs of behavioral economics.

At least behavioral economics is experimental, investigative and non-Platonic. Neoclassical economics is all but three of those things.

That said, the two column authors do have a nugget or to, such as this:
Behavioral economics should complement, not substitute for, more substantive economic interventions.
I partially agree. Until traditional economics can be more empirical, more verifiable and less Theory-of-Everything driven, at the least, behavioral-driven economic thinking needs to come more and more to the fore.

Surprisingly, Peter Ubel, a coauthor of the column, has a book titled, “Free Market Madness: Why Human Nature Is at Odds With Economics.” And, George Loewenstein has done solid work in behavioral econoics, per his Wiki page.

The column was wrongly written. Not all behavioral economists make the claims that Cass Sunstein does. (He is ultimately the clear target of the column.) So, why not say so?

It decreases the pair's claim to intellectual rigor to paint with what are clearly broad, and unnecessarily broad, brush strokes.

Computers will NOT save economics

Andrew Leonard is right on this, as far as he goes; massive computer power didn't rein in Wall Street greed. In fact, many trading programs were "gamed," "rigged," or otherwise tweaked inside some of these companies.

But, to not use this as a starting point for a talk on behavioral economics is just not excusable, Andrew. Any economic theorizing that doesn't incorporate elements of it is still stuck in the 20th century.

Both liberals and conservatives need behavioral economics lessons

David Brooks doesn’t actually use the phrase “behavioral economics,” but it’s clear that’s what he’s talking about when he says both conservatives and liberals currently hold fast to rationalistic, mechanistic versions of macroeconomics.

And, you know something? He’s right.

Blind faith in the “invisible hand” of Adam Smith and conservatives has been shattered – and not for the first time. But, as Brooks notes, Keynesian economics is pretty mechanistic itself, with faith in government stimuluses and debt-based pump priming believed to be tools to also get “rational actors” acting rationally again.

Well, behavioral economics points out that we aren’t normally rational actors. Or even close to it.

Of course, truly progressive thinkers have long known that.

And, as for yours truly, I’ve pointed out in the past that Smith’s “invisible hand” is grounded in his Enlightenment Deism, refuted by world wars, the Holocaust, nuclear weaponry, etc.

How did Linens ’n Things AVOID bankruptcy so long?

Linens ’n Things officially filed for bankruptcy this spring, as I noted here.

The store in Cedar Hill, suburban Dallas, where I work as editor of a suburban community newspaper, is among those being closed by the parent company.

Right now, their closeout sale is at 30 percent off on most items.

I dropped in and shelf-shopped last night.

I purchased nothing, but gained a whole new level of skepticism for “power shopping.”

I don’t get how a story like Linens EVER had a viable business model.

Even at 30 percent off, their small appliances, like coffee makers, are more expensive than at Fry’s. And, at 30 percent off, their touted Egyptian cotton towels are more expensive than similar ones at WallyWorld.

Image, I guess, is that powerful for many people. It just shows how true behavioral economics is.

On the coffee table – ‘Predictably Irrational’

Earlier this week, I blogged about how behavioral economics is the best refutation of libertarianism (I originally typed “liberalism,” sorry!).

In a nutshell, as opposed to the neoclassicism of Milton Friedman, Ludwig von Mises, Alan Greenspan, et al. (hell, Adam Smith and his deist philosophical basis for that matter), behavioral economics, which owes a lot to modern neuroscience, cognitive philosophy and evolutionary psychology, says we are often irrational, even hugely irrational, in our economic decision-making.

Behavioral economics also differs from neoclassicism in another way. Neoclassicist economics has been like Aristotelian “science” as practiced in the Middle Ages – rote dogma, without experimentation.

Behavioral economics, on the other hand, has been a leader in empirical, experimental research. Oh, sure, neoclassicism has started to do more research, but it hasn’t gotten into neuroscience tools like the use of fMRIs, etc.

What’s this all mean? Other than Alan Greenspan was bullshitting about the rationality of the markets all these years, of course.

Well, Dan Ariely spells it out in “Predictably Irrational,” an excellent intro to the field.

Common-sense psychology would tell us these are “no duh” statements, but two of Homo sapiens’ highest irrationality pushers? Money and sex.

Whether it’s abstinence pledges, the use of condoms, kinky sex or whatever, what people say they will and won’t do in moments of calmness changes a lot when they get hot and bothered. Obviously, this has fallout for abstinence-only teen sexuality programs.

Money? First way we are irrational is whenever the word “free” gets attached to something. Doesn’t matter how little we need something. Doesn’t even matter how little we LIKE something. Ariely shows that if it’s free, we’re taking more of it.

The second way money makes us irrational is much more serious – financial cheating. Ariely thinks that the Enrons and other situations of our world have increased precisely because more complex investment vehicles and other things separate us more from direct contact with money, thereby making it easier to rationalize cheating. His experiments have demonstrated this with things like test cheating. People will cheat more if their scores are based on getting a token, then exchanging that for money, rather than being directly paid in money. In fact, they’ll cheat at least twice as much.

Besides money and sex, social issues can cause irrational behavior. Here in individualistic America, people in groups/at tables will often order food and drinks they don’t like just not to be imitative. In some traditional societies elsewhere in the world, just the opposite is true.

And, that gets back to financial cheating. Ariely says other things, like ethics codes, more contract signatures, etc., can “prime” ethical behavior in people’s heads, even if they are several steps removed from actual cash.

This is a light 250-page read and a five-star book.

The best refutation ever of libertarianism …

Is behavioral economics. Nothing throws a wrench in libertarian spokes better than being able to show, i.e., prove (or show professional proof) that people not only do not make rational economic decisions, they make clearly irrational ones.

I will soon be done with “Predictably Irrational,” a great new introductory book to this issue by a MIT behavioral economist, and posting a review.

Greenspan says credit crunch worst since WWII

Former Federal Reserve Chairman Alan Greenspan said the credit crunch is the worst problem facing the country since World War II.

The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.

Unfortunately, he neither offered much in the way of solutions nor took responsibility for his own quite large part in the debacle.

All he would do was blather that regulatory changes should not affect the mythical, hagiographic “free market system.” And, in fact, he defended large parts of the current system of securitization of various types of debt and credit:

I do not say that the current systems of risk management or econometric forecasting are not in large measure soundly rooted in the real world. The exploration of the benefits of diversification in risk-management models is unquestionably sound and the use of an elaborate macroeconometric model does enforce forecasting discipline.

He did admit that there is room for behavioral economics in the modern modeling world:

Forecasters’ concerns should be not whether human response is rational or irrational, only that it is observable and systematic.

And, where were you on that 5 or 10 years ago?