Palko quotes Galbraith from the classic The Great Crash 1929:
Alone among the various forms of larceny [embezzlement] has a time parameter. Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in—or more precisely not in—the country’s business and banks.
. . .
This inventory—it should perhaps be called the bezzle—amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times, people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances, the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression, all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.
He also quotes John Kay:
From this perspective, the critic who exposes a fake Rembrandt does the world no favor: The owner of the picture suffers a loss, as perhaps do potential viewers, and the owners of genuine Rembrandts gain little. The finance sector did not look kindly on those who pointed out that the New Economy bubble of the late 1990s, or the credit expansion that preceded the 2008 global financial crisis, had created a large febezzle.
Palko continues:
In 2021, the bezzle grew to unimaginable proportions. Imagine a well-to-do family sitting down to calculate their net worth last December. Their house is worth three times what they paid for it. The portfolio’s doing great, particularly those innovation and disruption stocks they heard about on CNBC. And that investment they made in crypto just for fun has turned into some real money.
Now think about this in terms of stimulus. Crypto alone has pumped trillions of dollars of imaginary money into the economy. Analogously, ending the bezzle functions like a massive contractionary tax. . . .
And this reminds me of . . .
Very parochially, this makes me all think of the replication crisis in psychology, medicine, and elsewhere in the human sciences. As Simine Vazire and I have discussed, a large “bezzle” in these fields accumulated over several decades and then was deflated in the past decade or so.
As with financial bezzles, during this waking-up period there was a lot of anger from academic and media thought leaders—three examples are here, here and here. It seems they were reacting to the loss in value: “From this perspective, the critic who exposes a fake Rembrandt does the world no favor: The owner of the picture suffers a loss, as perhaps do potential viewers, and the owners of genuine Rembrandts gain little.”
This also relates to something else I’ve noticed, which is that many of these science leaders are stunningly unbothered by bad science. Consider some notorious “fake Rembrandts” of 2010 vintage such as the misreported monkey experiments, the noise-mining ESP experiments, the beauty-and-sex ratio paper, the pizzagate food studies, the missing shredder, etc etc. You’d think that institutions such as NPR, Gladwell, Freakonomics, Nudge, and the Association for Psychological Science would be angry at the fakers and incompetents who’d put junk science into the mix, but, to the extent they show emotion on this at all, it tends to be anger at the Javerts who point out the problem.
At some level, I understand. As I put it a few years ago, these people own stock in a failing enterprise, so no wonder they wants to talk it up. Still, they’re the ones who got conned, so I’d think they might want to divert some of their anger to the incompetents and fraudsters who published and promoted the science bezzle—all this unreplicable research.
P.S. Related, from 2014: The AAA tranche of subprime science.
Great analogy. As long as the value of BS is rising, NPR, Gladwell, Freakonomics, Nudge, and the Association for Psychological Science are making the cash (you forgot TED). In one sense they’re like the Jim Cramers of the social science scene.
But you’d think the social science media would take some tips from the financial media. The financial media are smart enough to play the downside as well. They have no shame about turning on the market they hyped only a few weeks earlier, relentlessly hyping its demise just as they hyped its rise. The last thing they want to do is lose the trust of the consumer by backing a discredited enterprise. Is that what distinguishes a money-making enterprise (financial media) from the True Believers (NPR, TED, APS etc)? Or maybe it just says something about how the money is made (donations & govt funding market vs. consumer ad market)?
> “easier and cheaper, making it easier to run replication studies and increase sample sizes.”
This was what prompted accelerated awareness of replication problems in medical research when gene expression studies started to be conducted – much easier to run replication studies there than clinical trials.
> The bezzle shrinks.
Has it shrunk much and in what fields? Evidence of that?
Where is that “easier and cheaper…” quote coming from? I don’t see it in the original post, nor in preceding replies.
It was in the article in the first link.
OK, who are the short sellers in this analogy?
Manuel:
Part of the problem is that it’s not so easy to “short” bad science. For example, suppose you were convinced, for good reason, that the papers on elderly priming, beauty and sex ratio, ESP, air rage, etc., were junk? And further suppose you realized this early, so you could get a jump on the market? So what! I see no clear way for you to have monetized this knowledge. I think that’s one reason the junk science market stayed inflated for so long (and indeed remains inflated to some extent, as we can see from the continuing success of Nudge, Ted, Dr. Oz, etc etc). There’s no quick feedback mechanism to go from savvy people seeing the problems with this work, to a general fall in its price, as it were.
He may not have covered himself in glory lately, but Ioannides has certainly profited from jeremiads on medical science bogusness. So have you, for that matter… I understnd the subscription price on this blog has quintupled in the last couple of years.
What does the work by Ioannides have to do with junk science listed above?
navigator –
I read that as J (ao) saying Ioannidis reached prominence (profited) by recognizing and exposing junk science.
Unfortunately, imo (but I don’t think in Jonathan’s opinion), more recently however, Ioannidis has been peddling some junk science (or perhaps better described as over-selling some questionable merchandise, kind of like a used car salesman).
> I see no clear way for you to have monetized this knowledge
As J(ao) points out – it all depends on how you define “junk science.”
Rogan, the Weinsteins, Sam Harris, Bar
ri Weiss, Jordan Peterson, etc, have made a shit ton of money monetizing “junk science.”
Of course, for the most part, imo, the junk of the junk science is what they’re peddling, not the science they’re making big bucks for criticizing. But either way junk science has been VERY lucrative for them.
Of course one can monetize junk science. But how does one monetize the recognition that the junk science is junk? It’s not like there’s a market where you can bet against replication.
Phil –
> But how does one monetize the recognition that the junk science is junk?
I’m saying that’s what the folks I mentioned say they’re doing; they say their goal is to expose junk science and they’ve monetized that schtick. But I think they’re science is junk more often than what they’re targeting is junk – so it’s a matter of perspective.
Vinay Prasad might be another, slightly more complicated example, ’cause some times he really is targeting junk science, imo – but at other times he’s peddling junk.
Oy.
their science
Damn gremlins keep putting those typos in.
In fact, because of ego-protection, people who realize that they were bunked and that its no longer practical to hide the bunk tend to refuse to acknowledge that people were telling them “this is bunk” for years. Allistics go along with this surprisingly often because it preserves social harmony and status hierarchies. See also the pundits who predict A, not A, and A in columns a few weeks apart and never explain why their view changed.
About the best one can do is not rush off trying fad diets, not pay a lot to consultants to implement the latest trend in *Psychology Today*, and so on.
Shorting has substantially higher risk than going long. The downside of the value of an enterprise or product is zero, but the upside is infinite. Since shorters lose on the upside, shorting offers infinite losses against limited gains.
There are a lot of things I’d like to short if the risk were symmetrical, but unfortunately even if there were a mechanism the asymmetric risk makes it unlikely to pay off except in the extreme cases (Wansink: data fabrication and academic fraud. Good short; Walker: fudging at the margins; bad short).
The probability that a whole market segment goes to either zero or infinity is so small as to be completely ignorable. Shorting exchange traded funds is not really strongly asymmetric. If you want you can always buy cheap out of the money call options to limit the maximum rise risk.
None of that applies to junk science. Indeed if there were a way to monetarily bet on junk science I would be doing that exclusively and using my massive income to fund real science, and probably a nice summer home, sailboat, fishing trips and a firearms collection… If someone figures out a real method, let me know. In reality, the only dupes stupid enough to fund science in any way are government agents, with a heavy principal agent problem. They’re relying on a very small number of real science projects paying off in spite of a very large number of embezzlers taking the rest.
Daniel:
Maybe not the firearms collection. I read somewhere that guns often end up being used on the owner.
It depends on how the bet is decided. When the cancer reproducibility project results finally came out (which essentially showed we would be better off coming up with ideas for experiments and flipping coins to choose the results), it was met with crickets. Maybe in a few years reality will set in.
So if the bet depends on some kind of market, you may be waiting a long time to collect.
You can also just take a short position through put options, in which case there is absolutely no asymmetry up to market liquidity.
“The probability that a whole market segment goes to either zero or infinity is so small as to be completely ignorable.”
Tell that to the GME shorters! Hilarios, Daniel, you have to participate in the market to know what happens there.
“Shorting exchange traded funds is not really strongly asymmetric”
C’mon Daniel. Shorting exchange traded funds is equivalent to shorting all of science – unless of course you’ve created the “bad company ETF” or the “bad science ETF”! :)
We don’t short the “Total Science ETF” for the same reason we don’t short the “Total Market ETF” : the long-term trend is up. BTW, I did short the total market for a while a few months back. But it’s like going against any upward trend – reversals instantaneously spike almost all the gains, so you have to time out before the reversal, so
But there it is! An obvious way to test your idea: create the Daniel Worst Company ETF!
chimpunk: you’re just reiterating my point. In the history of forever has every “consumer retail” company on the stock exchange all gone to zero? Or up by a factor of 1000x? How about all of “medical devices” or “semiconductors” or “tech-software” or “Real estate” or “Aerospace/defense” or “Global healthcare” or “natural resources” or any of the other sector funds you can buy? It’s a totally reasonable strategy to go long some sectors and short others on information like “financial services are going to crash because of the housing bubble, and also home manufacturing, but when everyone has to abandon their homes, rental prices will go up so I’ll go long REITs that own rental properties…
ETFs aren’t just “the whole market”.
Andrew: suicide by firearm is the main cause of firearms deaths which is probably what you’ve heard. Anyone who owns firearms should have a plan to do something like give the keys to their locked cabinets to a friend if they get into a depressive state. But, the overwhelmingly most likely thing to happen to firearms owners… is that they enjoy some time shooting at a range or hunting. There are something like 100M firearms owners in the US, and 400M guns *at least*. There are ~20k suicides and 10k homicides per year or so (maybe a few more recently, there’s an upward trend). The vast majority of the homicides are committed by people involved in the drug trade with stolen guns, certainly not something like a break-in where a person steals the gun and kills the homeowner.
Assume you’re not at all suicidal. Assume also that you are a middle aged white male with no connection to any extremist organizations, who lives in a neighborhood where there have been very few shootings of any kind, and that you lock your firearms in proper safe storage containers. Then the probability of a firearm you own being used against you is on the order of like maybe 1/100,000,000/yr which is dramatically lower than the probability that you will die of lightning strike. Seriously, someone breaks in, takes a grinder to your gun safe for about 10-15 mins, gets the guns, loads them, and just as they’re leaving you drive up from your evening softball game? Doesn’t happen.
About 10 years ago, I noticed this connection between the replication crisis and the financial crisis too. After people like Michael Burry and Steve Eisman had decided that the market was going to collapse, it wasn’t actually a straightforward matter to bet against it. As Michael Lewis pointed out in the Big Short:
“To sell a stock or bond short you need to borrow it, and [the bonds they were interested in] were tiny and impossible to find. You could buy them or not buy them but you couldn’t bet explicitly against them; the market for subprime mortages simply had no place for people in it who took a dim view of them. You might know with certainty that the entire mortgage bond market was doomed, but you could do nothing about it.” (p. 29)
Likewise, there’s no place in the literature for people who take a dim view of the results that circulate in the scientific literature. Editors don’t like papers that only point out errors in other people’s work. You have to make a “contribution”. In a sense, you can buy the stories people are telling you or not buy them but you can’t criticize them.
The thing is, if in 2007 you said to yourself “this mortgage market is insane, people will soon be bankrupted and housing prices will crash, banks and mortgage lenders, and consumer financial services will be hurt for quite a while, housing will stop construction, people will be forced out of their homes and rental prices will skyrocket, people who make durable consumer goods will have terrible years since many consumers won’t have money… the government will then print money and buy bonds, and the finance industry will take that cash and pour money into tech stocks like Apple and Google
Then you could act on that by going long in REITS that owned rental property, tech sector ETFs, and bond funds, and short on consumer finance companies, mortgage lenders, car and appliance manufacturers, and home building. ETFs to accomplish most of that are available from iShares and others.
It wasn’t hard to do, it was hard to really foresee what the fallout from the inevitable crash would be, particularly with respect to what the *political choices* the government would make were. The economy is so affected by government policy that it’s not enough to know the basic economics and business issues.
Yes. To flesh out the analogy, once you realize that priming effects have been overblown, it’s not clear what areas you should shift your research into because you can’t foresee how the funding bodies will react.
But isn’t that precisely why we want to be able to publish (and be rewarded career-wise) for a direct critique that turns out to be correct? We need to be able to “short” research that seems ill-conceived, not just “go long” on adjacent research.
Yep. We actually want a way to get funding for debunking research. And not a way for people to do it voluntarily, but rather a way to force agencies to pay for good “audits” of published research. Then people could actively transfer the bezzle from those who embezzled it to those who are committed to scientific accuracy and integrity.
Daniel: +1
It’s too hard to publish criticisms and obtain data for replication.
In fact, wouldn’t the owners of real Rembrandts potentially be hurt by exposure of fakes? It would cast doubt on their own Rembrandts. Similarly, I think exposing junk science decreases the ‘value’ of real science in that people just become less credulous of science generally. They don’t think, “ok, now everything that’s left is probably the good stuff”. Of course exposing junk science helps Science with a capital “S” (but not the journal).
Yah, good point.
Not sure I agree with that one. Exposing a fake Rembrandt reduces the number of real (or thought-to-be-real) Rembrandts in the wild, making them more valuable due to scarcity. Also, consider the converse: if we let fake Rembrandts circulate willy-nilly, they will proliferate and devalue all Rembrandts (real and fake).
Part of me wonders if a “market for lemons” could emerge in areas with a mixture of real and fake.
You have the correct answer.
The “Rembrandt” model of science is incorrect.
Scientific concepts and theories aren’t the equivalent of collectibles. They are functional information – information that is used to accomplish some task. That’s the real test of science: does the theory accurately explain how to accomplish the task?
Exposing junk science when it’s published might have a small immediate negative “media” effect. But waiting until the proverbial wheels fall off is where the lasting damage happens. Furthermore, when junk science is exposed immediately, the person who did it can carry the responsibility and the people who exposed it can take the credit for preventing problems. But if bystanders who know better wait for the wheels to fall off, they share the responsibility of the failures.
If there were thought to be 20 certified real Rembrandts in the world and 2 are exposed as fakes, I’m now much less willing to pay a lot of money for any of the remaining 18. Sure, they’re slightly scarcer now, but in my mind also significantly more likely to be fake (a possibility I might not have even considered before the others were exposed since I would have trusted the certification process). And I don’t think that if those 2 weren’t exposed there would then be more and more fake Rembrandts popping up willy nilly. Everybody knows there weren’t that many and it would take a lot for a new one to be certified.
What if there were known to be 20,000 fake Rembrandts that were already exposed as fakes? Does it give you more confidence that the 18 certified Rembrandts are real?
Z:
That’s a great argument for Rembrandts but it doesn’t apply to the exposure of scientific fraud for a whole bunch of reasons.
Expanding on my earlier point, scientific claims, hypothesis and theories:
1) are free. No one buys or sells them.
2) are composed of information, not objects, so
_a) they are not rare or abundant or subject to any kind of supply and demand principles.
_b) they have nearly zero cost of exact reproduction and are not analogous to any object.
3) are valued by their utility, not their rareness, nor uniqueness, nor the brilliance of their creators. The “certification” of a scientific theory is whether or not it works.
4) The closest analogy of a scientific theory to an object is to a tool, which performs a function, not an art work, which has no function. If an organization produces, for example, a table saw that has the exact same performance metrics as the highest quality brand, carpenters don’t care if it’s a “fake”: it does the same work so, on the job it has the same value.
5) can be improved and updated for nearly zero cost (try that with a Rembrandt!).
The big downside to exposing scientific fraud is for people trying to push / fund scientific claims that aren’t demonstrably true, because it casts shadows on their shaky claims. This is common in the political effort around certain topics, where some core claim is true, but is intentionally conflated with other claims that aren’t demonstrably true – and its the undemonstrated claims provide the justification for some costly program.
Chipmunk: Regarding science vs Rembrandts, I disagree with your point that scientific products are only tools or only have value insofar as they are useful or replicate. This may be close to true in certain hard sciences. But scientific products are also very much illustrations of the brilliance/cleverness of their creators that do bring with them scarce acclaim and resources (professorships, grants, etc). And many social sciences are not ‘real’ sciences in the sense that if a discovery does not ‘work’ it will eventually be disgarded. Papers often produce stylized facts that are not load bearing in any meaningful way and exist primarily to score points for their authors. And I think it’s the case that authors of papers that are well done and produce stylized facts that are likely true suffer loss of acclaim (at least in some circles) when junk science that is superficially similar to their work gets exposed.
Z says:
“But scientific products…do bring with them scarce acclaim and resources (professorships, grants, etc).”
Fair enough, but they’re still not analogous to the trade in fake Rembrandts. The “value” in this case is the value of the R panting or the SciTheory to the *fraudster*. Obviously a good fake of an R painting is highly valuable to the fraudster. But how valuable is a fake social science theory to the fraudster? It has some value – a comfortable job – but fake SS theories aren’t winning nobel prizes (yet. Are they?).
The question we’re asking is: how does it affect the value of theories on the broader market for the “believability” of science? Since, as you point out, social science theories aren’t “load bearing”, I’d suggest that the value of these theories is already so low that the effect of uncovered fraud is negligible. They’re already all suspect because they aren’t “load bearing”. They’re more or less considered political fodder anyway, because so many published claims are outrageously stupid.
In effect, social science theories are already perceived as though they are toy carpenters’ tools: everyone knows they don’t work. For that reason they don’t carry scientific value in the first place. They have only rhetorical value.
Z –
> Similarly, I think exposing junk science decreases the ‘value’ of real science in that people just become less credulous of science generally.
Again, I think subjectivity comes into play here. One person’s non-junk a science is another person’s junk science and visa versa.
Despite a popular trope otherwise, there doesn’t seem to be a lot of evidence that people are significantly less credulous of scienc, generally.
But there is evidence that certain subgroups are significantly less credulous of science, because of a view that junk science is being exposed by “truth”-dwellers and is highly prevalent (in the “mainstream” and in government supported institutions of science.
I think the dynamic you’re describing comes into play, certainly with certain sub-groups. But it’s complicated and at a more general level it largely balances out because of countervailing and opposing influences.
Joshua:
We’ve discussed the Chestertonian principle that extreme skepticism is a form of credulity; we discussed this recently in the context of Joe Rogan.
Harry Crane has done some thoughtful work here: https://researchers.one/articles/18.08.00013
The:
I think Crane is overly optimistic about betting. See this discussion from Megan Higgs and Anna Dreber about betting and science. I think I’ve written more on this issue myself but I can’t find it right now.