The Dismal Mind - Economics as a Pretension to Science - Part II

Written by Sam Vaknin

III. The Scientific Method

To qualify as science, an economic theory must satisfyrepparttar following conditions:

All-inclusive (anamnetic) It must encompass, integrate and incorporate allrepparttar 132661 facts known. Coherent It must be chronological, structured and causal. Consistent Self-consistent (its sub-"narratives" cannot contradict one another or go againstrepparttar 132662 grain ofrepparttar 132663 main "narrative") and consistent withrepparttar 132664 observed phenomena (both those related torepparttar 132665 subject and those pertaining torepparttar 132666 rest ofrepparttar 132667 universe). Logically compatible It must not violaterepparttar 132668 laws of logic both internally (the narrative must abide by some internally imposed logic) and externally (the Aristotelian logic which is applicable torepparttar 132669 observable macro world). Insightful It must inspire a sense of awe and astonishment, which isrepparttar 132670 result of seeing something familiar in a new light orrepparttar 132671 result of seeing a pattern emerging out of a big body of data ("data mining"). The insights must berepparttar 132672 inevitable conclusion ofrepparttar 132673 logic,repparttar 132674 language and ofrepparttar 132675 development ofrepparttar 132676 narrative. Aesthetic The narrative must be both plausible and "right", beautiful (aesthetic), not cumbersome, not awkward, not discontinuous, smooth and so on. Parsimonious The narrative must employrepparttar 132677 minimum number of assumptions and entities in order to satisfy allrepparttar 132678 above conditions. Explanatory The narrative must explainrepparttar 132679 behaviour of economic actors, their decisions, why events developrepparttar 132680 way they do. Predictive (prognostic) The narrative must possessrepparttar 132681 ability to predict future events,repparttar 132682 future behaviour of economic actors and of other meaningful figures andrepparttar 132683 inner emotional and cognitive dynamics of said actors. Prescriptive Withrepparttar 132684 power to induce change (whether it is forrepparttar 132685 better, is a matter of contemporary value judgements and fashions). Imposing The narrative must be regarded by society asrepparttar 132686 preferable and guiding organizing principle. Elastic The narrative must possessrepparttar 132687 intrinsic abilities to self organize, reorganize, give room to emerging order, accommodate new data comfortably, avoid rigidity in its modes of reaction to attacks from within and from without. In some of these respects, current economic narratives are usually theories in disguise. But scientific theories must satisfy not only most ofrepparttar 132688 above conditions. They must also passrepparttar 132689 crucial hurdles of testability, verifiability, refutability, falsifiability, and repeatability all failed by economic theories. Many economists argue that no experiments can be designed to testrepparttar 132690 statements of economic narratives, to establish their truth-value and, thus, to convert them to theorems.

There are five reasons to account for this shortcoming -repparttar 132691 inability to test hypotheses in economics:

Ethical Experiments would have to involve humans. To achieverepparttar 132692 necessary result,repparttar 132693 subjects will have to be ignorant ofrepparttar 132694 reasons forrepparttar 132695 experiments and their aims. Sometimes evenrepparttar 132696 very performance of an experiment will have to remain a secret (double blind experiments). Some experiments may involve unpleasant experiences. This is ethically unacceptable. Design Problems - The design of experiments in economics is awkward and difficult. Mistakes are often inevitable, however careful and meticulousrepparttar 132697 designer ofrepparttar 132698 experiment is. The Psychological Uncertainty Principle The current position of a human subject can be (theoretically) fully known. Butrepparttar 132699 passage of time andrepparttar 132700 experiment itself influencerepparttar 132701 subject and void this knowledge ("time inconsistencies"). The very processes of measurement and observation influencerepparttar 132702 subject and change him. Uniqueness Experiments in economics, therefore, tend to be unique and cannot be replicated elsewhere and at other times even if they deal withrepparttar 132703 SAME subjects. The subjects (the tested humans) are neverrepparttar 132704 same due torepparttar 132705 aforementioned psychological uncertainty principle. Repeatingrepparttar 132706 experiments with other subjects adversely affectsrepparttar 132707 scientific value ofrepparttar 132708 results. The undergeneration of testable hypotheses Economics does not generate a sufficient number of hypotheses, which can be subjected to scientific testing. This has to do withrepparttar 132709 fabulous (=storytelling) nature ofrepparttar 132710 discipline. In a way, Economics has affinity with some private languages. It is a form of art and, as such, is self-sufficient. If structural, internal constraints and requirements are met a statement is deemed true even if it does not satisfy external (scientific) requirements. Thus,repparttar 132711 standard theory of utility is considered valid in economics despite empirical evidence torepparttar 132712 contrary - simply because it is aesthetic and mathematically convenient. So, what are economic narratives good for?

The Distributive Justice of the Market - Part I

Written by Sam Vaknin

The public outcry against executive pay and compensation followed disclosures of insider trading, double dealing, and outright fraud. But even honest and productive entrepreneurs often earn more money in one year than Albert Einstein did in his entire life. This strikes many - especially academics - as unfair. Surely Einstein's contributions to human knowledge and welfare far exceed anything ever accomplished by sundry businessmen? Fortunately, this discrepancy is cause for constructive jealousy, emulation, and imitation. It can, however, lead to an orgy of destructive and self-ruinous envy.

Entrepreneurs recombine natural and human resources in novel ways. They do so to respond to forecasts of future needs, or to observations of failures and shortcomings of current products or services. Entrepreneurs are professional - though usually intuitive - futurologists. This is a valuable service and it is financed by systematic risk takers, such as venture capitalists. Surely they all deserve compensation for their efforts andrepparttar hazards they assume?

Exclusive ownership isrepparttar 132659 most ancient type of such remuneration. First movers, entrepreneurs, risk takers, owners ofrepparttar 132660 wealth they generated, exploiters of resources - are allowed to exclude others from owning or exploitingrepparttar 132661 same things. Mineral concessions, patents, copyright, trademarks - are all forms of monopoly ownership. What moral right to exclude others is gained from beingrepparttar 132662 first?

Nozick advanced Locke's Proviso. An exclusive ownership of property is just only if "enough and as good is left in common for others". If it does not worsen other people's lot, exclusivity is morally permissible. It can be argued, though, that all modes of exclusive ownership aggravate other people's situation. As far as everyone, barrepparttar 132663 entrepreneur, are concerned, exclusivity also prevents a more advantageous distribution of income and wealth.

Exclusive ownership reflects real-life irreversibility. A first mover hasrepparttar 132664 advantage of excess information and of irreversibly invested work, time, and effort. Economic enterprise is subject to information asymmetry: we know nothing aboutrepparttar 132665 future and everything aboutrepparttar 132666 past. This asymmetry is known as "investment risk". Society compensatesrepparttar 132667 entrepreneur with one type of asymmetry - exclusive ownership - for assuming another,repparttar 132668 investment risk.

One way of looking at it is that all others are worse off byrepparttar 132669 amount of profits and rents accruing to owner-entrepreneurs. Profits and rents reflect an intrinsic inefficiency. Another is to recall that ownership isrepparttar 132670 result of adding value torepparttar 132671 world. It is only reasonable to expect it to yield torepparttar 132672 entrepreneur at least this value added now and inrepparttar 132673 future.

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