Capitalistic Musings | Page 3

economic behaviours.
h. Explanatory Powers - It must explain the behaviour of economic actors, their decisions, and why economic events develop the way they do.
i. Predictive (prognostic) Powers - Economic theory must be able to predict future economic events and trends as well as the future behaviour of economic actors.
j. Prescriptive Powers - The theory must yield policy prescriptions, much like physics yields technology. Economists must develop "economic technology" - a set of tools, blueprints, rules of thumb, and mechanisms with the power to change the " economic world".
k. Imposing - It must be regarded by society as the preferable and guiding organizing principle in the economic sphere of human behaviour.
l. Elasticity - Economic theory must possess the intrinsic abilities to self organize, reorganize, give room to emerging order, accommodate new data comfortably, and avoid rigid reactions to attacks from within and from without.
Many current economic theories do not meet these cumulative criteria and are, thus, merely glorified narratives.
But meeting the above conditions is not enough. Scientific theories must also pass the crucial hurdles of testability, verifiability, refutability, falsifiability, and repeatability. Yet, many economists go as far as to argue that no experiments can be designed to test the statements of economic theories.
It is difficult - perhaps impossible - to test hypotheses in economics for four reasons.
a. Ethical - Experiments would have to involve human subjects, ignorant of the reasons for the experiments and their aims. Sometimes even the very existence of an experiment will have to remain a secret (as with double blind experiments). Some experiments may involve unpleasant experiences. This is ethically unacceptable.
b. Design Problems - The design of experiments in economics is awkward and difficult. Mistakes are often inevitable, however careful and meticulous the designer of the experiment is.
c. The Psychological Uncertainty Principle - The current mental state of a human subject can be (theoretically) fully known. But the passage of time and, sometimes, the experiment itself, influence the subject and alter his or her mental state - a problem known in economic literature as "time inconsistencies". The very processes of measurement and observation influence the subject and change it.
d. Uniqueness - Experiments in economics, therefore, tend to be unique. They cannot be repeated even when the SAME subjects are involved, simply because no human subject remains the same for long. Repeating the experiments with other subjects casts in doubt the scientific value of the results.
d. The undergeneration of testable hypotheses - Economic theories do not generate a sufficient number of hypotheses, which can be subjected to scientific testing. This has to do with the fabulous (i.e., storytelling) nature of the discipline.
In a way, economics has an affinity with some private languages. It is a form of art and, as such, it is self-sufficient and self-contained. If certain structural, internal constraints and requirements are met - a statement in economics is deemed to be true even if it does not satisfy external (scientific) requirements. Thus, the standard theory of utility is considered valid in economics despite overwhelming empirical evidence to the contrary - simply because it is aesthetic and mathematically convenient.
So, what are economic "theories" good for?
Economic "theories" and narratives offer an organizing principle, a sense of order, predictability, and justice. They postulate an inexorable drive toward greater welfare and utility (i.e., the idea of progress). They render our chaotic world meaningful and make us feel part of a larger whole. Economics strives to answer the "why's" and "how's" of our daily life. It is dialogic and prescriptive (i.e., provides behavioral prescriptions). In certain ways, it is akin to religion.
In its catechism, the believer (let's say, a politician) asks: "Why... (and here follows an economic problem or behaviour)".
The economist answers:
"The situation is like this not because the world is whimsically cruel, irrational, and arbitrary - but because ... (and here follows a causal explanation based on an economic model). If you were to do this or that the situation is bound to improve".
The believer feels reassured by this explanation and by the explicit affirmation that there is hope providing he follows the prescriptions. His belief in the existence of linear order and justice administered by some supreme, transcendental principle is restored.
This sense of "law and order" is further enhanced when the theory yields predictions which come true, either because they are self-fulfilling or because some real "law", or pattern, has emerged. Alas, this happens rarely. As "The Economist" notes gloomily, economists have the most disheartening record of failed predictions - and prescriptions.
The Misconception of Scarcity
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
Are we confronted merely with a bear market in stocks - or is it the first phase of a global contraction of the magnitude of the Great Depression? The answer overwhelmingly depends on how we understand scarcity.
It will be only a mild overstatement to say