Ludwig von Mises

I. INTRODUCTION

Storytelling has been with us since the days of campfire and besieging wild animals. It served a number of important functions: amelioration of fears, communication of vital information (regarding survival tactics and the characteristics of animals, for instance), the satisfaction of a sense of order (predictability and justice), the development of the ability to hypothesize, predict and introduce theories and so on.

We are all endowed with a sense of wonder. The world around us in inexplicable, baffling in its diversity and myriad forms. We experience an urge to organize it, to "explain the wonder away", to order it so that we know what to expect next (predict). These are the essentials of survival. But while we have been successful at imposing our mind on the outside world – we have been much less successful when we tried to explain and comprehend our internal universe and our behaviour.

Economics is not an exact science, nor can it ever be. This is because its "raw material" (humans and their behaviour as individuals and en masse) is not exact. It will never yield natural laws or universal constants (like physics). Rather, it is a branch of the psychology of masses. It deals with the decisions humans make. Richard Thaler, the prominent economist, argues that a model of human cognition should lie at the heart of every economic theory. In other words he regards economics to be an extension of psychology.

II. PHILOSOPHICAL CONSIDERATIONS - THE ISSUE OF MIND (PSYCHOLOGY)

The relationships between the structure and functioning of our (ephemeral) mind, the structure and modes of operation of our (physical) bodies and the structure and conduct of social collectives have been the matter of heated debate for millennia.

There are those who, for all practical purposes, identify the mind with its product (mass behaviour). Some of them postulate the existence of a lattice of preconceived, born, categorical knowledge about the universe – the vessels into which we pour our experience and which mould it. Others have regarded the mind as a black box. While it is possible in principle to know its input and output, it is impossible, again in principle, to understand its internal functioning and management of information.

The other camp is more "scientific" and "positivist". It speculated that the mind (whether a physical entity, an epiphenomenon, a non-physical principle of organization, or the result of introspection) – has a structure and a limited set of functions. They argue that a "user's manual" can be composed, replete with engineering and maintenance instructions. The most prominent of these "psychodynamists" was, of course, Freud. Though his disciples (Jung, Adler, Horney, the object-relations lot) diverged wildly from his initial theories – they all shared his belief in the need to "scientify" and objectify psychology. Freud – a medical doctor by profession (Neurologist) and Bleuler before him – came with a theory regarding the structure of the mind and its mechanics: (suppressed) energies and (reactive) forces. Flow charts were provided together with a method of analysis, a mathematical physics of the mind.

Yet, dismal reality is that psychological theories of the mind are metaphors of the mind. They are fables and myths, narratives, stories, hypotheses, conjunctures. They play (exceedingly) important roles in the psychotherapeutic setting – but not in the laboratory. Their form is artistic, not rigorous, not testable, less structured than theories in the natural sciences. The language used is polyvalent, rich, effusive, and fuzzy – in short, metaphorical. They are suffused with value judgements, preferences, fears, post facto and ad hoc constructions. None of this has methodological, systematic, analytic and predictive merits.

Still, the theories in psychology are powerful instruments, admirable constructs of the mind. As such, they probably satisfy some needs. Their very existence proves it.

The attainment of peace of mind, for instance, is a need, which was neglected by Maslow in his famous model. People often sacrifice material wealth and welfare, forgo temptations, ignore opportunities and put their lives in danger – just to reach this bliss of tranquility. There is, in other words, a preference of inner equilibrium over homeostasis. It is the fulfilment of this overriding need that psychological treatment modalities cater to. In this, they are no different to other collective narratives (myths, for instance).

But, psychology is desperately trying to link up to reality and to scientific discipline by employing observation and measurement and by organizing the results and presenting them using the language of mathematics (rather, statistics). This does not atone for its primordial "sin": that its subject matter (humans) is ever-changing and its internal states are inaccessible and incommunicable. Still, it lends an air of credibility and rigorousness to it.

III. THE SCIENTIFIC METHOD

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

1. All-inclusive (anamnetic) – It must encompass, integrate and incorporate all the facts known.

2. Coherent – It must be chronological, structured and causal.

3. Consistent – Self-consistent (its sub-"narratives" cannot contradict one another or go against the grain of the main "narrative") and consistent with the observed phenomena (both those related to the subject and those pertaining to the rest of the universe).

4. Logically compatible – It must not violate the laws of logic both internally (the narrative must abide by some internally imposed logic) and externally (the Aristotelian logic which is applicable to the observable macro world).

5. Insightful – It must inspire a sense of awe and astonishment, which is the result of seeing something familiar in a new light or the result of seeing a pattern emerging out of a big body of data ("data mining"). The insights must be the inevitable conclusion of the logic, the language and of the development of the narrative.

6. Aesthetic – The narrative must be both plausible and "right", beautiful (aesthetic), not cumbersome, not awkward, not discontinuous, smooth and so on.

7. Parsimonious – The narrative must employ the minimum number of assumptions and entities in order to satisfy all the above conditions.

8. Explanatory – The narrative must explain the behaviour of economic actors, their decisions, why events develop the way they do.

9. Predictive (prognostic) – The narrative must possess the ability to predict future events, the future behaviour of economic actors and of other meaningful figures and the inner emotional and cognitive dynamics of said actors.

10. Prescriptive – With the power to induce change (whether it is for the better, is a matter of contemporary value judgements and fashions).

11. Imposing – The narrative must be regarded by society as the preferable and guiding organizing principle.

12. Elastic – The narrative must possess the intrinsic abilities to self organize, reorganize, give room to emerging order, accommodate new data comf
    Tips for Choosing Better Low APR Credit Cards
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    argues that a model of human cognition should lie at the heart of every economic theory. In other words he regards economics to be an extension of psychology.

    II. PHILOSOPHICAL CONSIDERATIONS - THE ISSUE OF MIND (PSYCHOLOGY)

    The relationships between the structure and functioning of our (ephemeral) mind, the structure and modes of operation of our (physical) bodies and the structure and conduct of social collectives have been the matter of heated debate for millennia.

    There are those who, for all practical purposes, identify the mind with its product (mass behaviour). Some of them postulate the existence of a lattice of preconceived, born, categorical knowledge about the universe – the vessels into which we pour our experience and which mould it. Others have regarded the mind as a black box. While it is possible in principle to know its input and output, it is impossible, again in principle, to understand its internal functioning and management of information.

    The other camp is more "scientific" and "positivist". It speculated that the mind (whether a physical entity, an epiphenomenon, a non-physical principle of organization, or the result of introspection) – has a structure and a limited set of functions. They argue that a "user's manual" can be composed, replete with engineering and maintenance instructions. The most prominent of these "psychodynamists" was, of course, Freud. Though his disciples (Jung, Adler, Horney, the object-relations lot) diverged wildly from his initial theories – they all shared his belief in the need to "scientify" and objectify psychology. Freud – a medical doctor by profession (Neurologist) and Bleuler before him – came with a theory regarding the structure of the mind and its mechanics: (suppressed) energies and (reactive) forces. Flow charts were provided together with a method of analysis, a mathematical physics of the mind.

    Yet, dismal reality is that psychological theories of the mind are metaphors of the mind. They are fables and myths, narratives, stories, hypotheses, conjunctures. They play (exceedingly) important roles in the psychotherapeutic setting – but not in the laboratory. Their form is artistic, not rigorous, not testable, less structured than theories in the natural sciences. The language used is polyvalent, rich, effusive, and fuzzy – in short, metaphorical. They are suffused with value judgements, preferences, fears, post facto and ad hoc constructions. None of this has methodological, systematic, analytic and predictive merits.

    Still, the theories in psychology are powerful instruments, admirable constructs of the mind. As such, they probably satisfy some needs. Their very existence proves it.

    The attainment of peace of mind, for instance, is a need, which was neglected by Maslow in his famous model. People often sacrifice material wealth and welfare, forgo temptations, ignore opportunities and put their lives in danger – just to reach this bliss of tranquility. There is, in other words, a preference of inner equilibrium over homeostasis. It is the fulfilment of this overriding need that psychological treatment modalities cater to. In this, they are no different to other collective narratives (myths, for instance).

    But, psychology is desperately trying to link up to reality and to scientific discipline by employing observation and measurement and by organizing the results and presenting them using the language of mathematics (rather, statistics). This does not atone for its primordial "sin": that its subject matter (humans) is ever-changing and its internal states are inaccessible and incommunicable. Still, it lends an air of credibility and rigorousness to it.

    III. THE SCIENTIFIC METHOD

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

    1. All-inclusive (anamnetic) – It must encompass, integrate and incorporate all the facts known.

    2. Coherent – It must be chronological, structured and causal.

    3. Consistent – Self-consistent (its sub-"narratives" cannot contradict one another or go against the grain of the main "narrative") and consistent with the observed phenomena (both those related to the subject and those pertaining to the rest of the universe).

    4. Logically compatible – It must not violate the laws of logic both internally (the narrative must abide by some internally imposed logic) and externally (the Aristotelian logic which is applicable to the observable macro world).

    5. Insightful – It must inspire a sense of awe and astonishment, which is the result of seeing something familiar in a new light or the result of seeing a pattern emerging out of a big body of data ("data mining"). The insights must be the inevitable conclusion of the logic, the language and of the development of the narrative.

    6. Aesthetic – The narrative must be both plausible and "right", beautiful (aesthetic), not cumbersome, not awkward, not discontinuous, smooth and so on.

    7. Parsimonious – The narrative must employ the minimum number of assumptions and entities in order to satisfy all the above conditions.

    8. Explanatory – The narrative must explain the behaviour of economic actors, their decisions, why events develop the way they do.

    9. Predictive (prognostic) – The narrative must possess the ability to predict future events, the future behaviour of economic actors and of other meaningful figures and the inner emotional and cognitive dynamics of said actors.

    10. Prescriptive – With the power to induce change (whether it is for the better, is a matter of contemporary value judgements and fashions).

    11. Imposing – The narrative must be regarded by society as the preferable and guiding organizing principle.

    12. Elastic – The narrative must possess the intrinsic abilities to self organize, reorganize, give room to emerging order, accommodate new data com
        Second Mortgages Become Attractive Cash Out Loan Alternatives
        With all of the interest rate talk these days at the water cooler, it seems that everyone knows where the interest rates are going except for the Federal Reserve. Of course people are speculating, and if they do predict where the interest rates are headed, they certainly could not tell you when they are rising or dropping.As most of you have realized by now, the first mortgage rates may not go back down to the 2004 levels when the 30 year fixed was in the low 5’s. Over the last 3 years, most homeowners have refinanced to an interest rate they are very comfortable with.As the housing market shifts, the demand for money is still great, but people will be taking out second mortgages to get cash and consolidate revolving debt. Second mortgages, also called home equity loans have become popular alternative loans that do not require homeowners to refinance their current home loan. As you can imagine, many homeowners would rather leave their low interest 1st mortgage untouched and simply take out a second mortgage on the property for incidental cash like make home improvements or financing a second home.With the market changing, it is important for consumers to understand how home equity loans work. 2nd mortgages are liens that are taken out against your home for purchase, or cash out refinancing. Second mortgages do use your home’s equity, so you want to be frugal and pragmatic when leveraging your home.Home Equity loans 125% - These liens are high LTV 2nd mortgages that all you to borrow against your home’s future value. It is hard to believe, but no mortgage insurance is required! The interest rate is fixed and the most common use of funds for these loans is debt consolidation.Home Equity Line of Credit 100% – Home equity lines are more revolving credit that carries a variable interest rate based on the Fed’s Prime index reported in the Wall street Journal. You only pay interest when you use funds from the line, and only the interest is due each month during the draw period. The most common use of funds with a
        diverged wildly from his initial theories – they all shared his belief in the need to "scientify" and objectify psychology. Freud – a medical doctor by profession (Neurologist) and Bleuler before him – came with a theory regarding the structure of the mind and its mechanics: (suppressed) energies and (reactive) forces. Flow charts were provided together with a method of analysis, a mathematical physics of the mind.

        Yet, dismal reality is that psychological theories of the mind are metaphors of the mind. They are fables and myths, narratives, stories, hypotheses, conjunctures. They play (exceedingly) important roles in the psychotherapeutic setting – but not in the laboratory. Their form is artistic, not rigorous, not testable, less structured than theories in the natural sciences. The language used is polyvalent, rich, effusive, and fuzzy – in short, metaphorical. They are suffused with value judgements, preferences, fears, post facto and ad hoc constructions. None of this has methodological, systematic, analytic and predictive merits.

        Still, the theories in psychology are powerful instruments, admirable constructs of the mind. As such, they probably satisfy some needs. Their very existence proves it.

        The attainment of peace of mind, for instance, is a need, which was neglected by Maslow in his famous model. People often sacrifice material wealth and welfare, forgo temptations, ignore opportunities and put their lives in danger – just to reach this bliss of tranquility. There is, in other words, a preference of inner equilibrium over homeostasis. It is the fulfilment of this overriding need that psychological treatment modalities cater to. In this, they are no different to other collective narratives (myths, for instance).

        But, psychology is desperately trying to link up to reality and to scientific discipline by employing observation and measurement and by organizing the results and presenting them using the language of mathematics (rather, statistics). This does not atone for its primordial "sin": that its subject matter (humans) is ever-changing and its internal states are inaccessible and incommunicable. Still, it lends an air of credibility and rigorousness to it.

        III. THE SCIENTIFIC METHOD

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

        1. All-inclusive (anamnetic) – It must encompass, integrate and incorporate all the facts known.

        2. Coherent – It must be chronological, structured and causal.

        3. Consistent – Self-consistent (its sub-"narratives" cannot contradict one another or go against the grain of the main "narrative") and consistent with the observed phenomena (both those related to the subject and those pertaining to the rest of the universe).

        4. Logically compatible – It must not violate the laws of logic both internally (the narrative must abide by some internally imposed logic) and externally (the Aristotelian logic which is applicable to the observable macro world).

        5. Insightful – It must inspire a sense of awe and astonishment, which is the result of seeing something familiar in a new light or the result of seeing a pattern emerging out of a big body of data ("data mining"). The insights must be the inevitable conclusion of the logic, the language and of the development of the narrative.

        6. Aesthetic – The narrative must be both plausible and "right", beautiful (aesthetic), not cumbersome, not awkward, not discontinuous, smooth and so on.

        7. Parsimonious – The narrative must employ the minimum number of assumptions and entities in order to satisfy all the above conditions.

        8. Explanatory – The narrative must explain the behaviour of economic actors, their decisions, why events develop the way they do.

        9. Predictive (prognostic) – The narrative must possess the ability to predict future events, the future behaviour of economic actors and of other meaningful figures and the inner emotional and cognitive dynamics of said actors.

        10. Prescriptive – With the power to induce change (whether it is for the better, is a matter of contemporary value judgements and fashions).

        11. Imposing – The narrative must be regarded by society as the preferable and guiding organizing principle.

        12. Elastic – The narrative must possess the intrinsic abilities to self organize, reorganize, give room to emerging order, accommodate new data com
            10 Steps Towards A Stress-Free Introduction Into Management
            Becoming a manager for the first time can be an unnerving and sometimes stressful experience. In many cases, organisations expect you to immediately jump into the role and begin to perform as if you have been there for years. Also, you may have been promoted "out of the blue" and as such have not taken part in any "succession planning" that would have prepared you for the management role.If you follow the ten steps outlined then you will put yourself in a much better position to develop into your management role than perhaps may have been the case.Step 1 - Be yourselfIt is important that you do not try to act like your predecessor. You will have your own style of management and it may be that the previous manager had a particular style that you were not comfortable with. You will have an idea of what the best management style is for any given situation but this will only come with time, perhaps through training and coaching. The best thing you can do is to look at yourself and decide what you want out of the management role and what you need to do in order to build your capabilities in that role.Step 2 - Go easy to start withAlthough there is always pressure on a new manager to take up where the last manager left off, don't go rushing into things. Do not be the "new broom that sweeps clean" all previous procedures away. Ensure that you reassure your team that it will be "business as usual" at least until you get the opportunity to speak to each team member about what their fears and hopes are as regards you being their manager.Step 3 - Talk to people, listen and gather informationIt is vital that you talk to each member of your team. Sit down with them and "contract" with them. How do the two of you want to work together? What are their expectations of you as their manager? What are their hopes, fears and aspirations? What are their motivators and de-motivators? It is important that this is a two way process and you should be asking them the same questions so as there is mutual understanding. Also ask t
            ss of tranquility. There is, in other words, a preference of inner equilibrium over homeostasis. It is the fulfilment of this overriding need that psychological treatment modalities cater to. In this, they are no different to other collective narratives (myths, for instance).

            But, psychology is desperately trying to link up to reality and to scientific discipline by employing observation and measurement and by organizing the results and presenting them using the language of mathematics (rather, statistics). This does not atone for its primordial "sin": that its subject matter (humans) is ever-changing and its internal states are inaccessible and incommunicable. Still, it lends an air of credibility and rigorousness to it.

            III. THE SCIENTIFIC METHOD

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

            1. All-inclusive (anamnetic) – It must encompass, integrate and incorporate all the facts known.

            2. Coherent – It must be chronological, structured and causal.

            3. Consistent – Self-consistent (its sub-"narratives" cannot contradict one another or go against the grain of the main "narrative") and consistent with the observed phenomena (both those related to the subject and those pertaining to the rest of the universe).

            4. Logically compatible – It must not violate the laws of logic both internally (the narrative must abide by some internally imposed logic) and externally (the Aristotelian logic which is applicable to the observable macro world).

            5. Insightful – It must inspire a sense of awe and astonishment, which is the result of seeing something familiar in a new light or the result of seeing a pattern emerging out of a big body of data ("data mining"). The insights must be the inevitable conclusion of the logic, the language and of the development of the narrative.

            6. Aesthetic – The narrative must be both plausible and "right", beautiful (aesthetic), not cumbersome, not awkward, not discontinuous, smooth and so on.

            7. Parsimonious – The narrative must employ the minimum number of assumptions and entities in order to satisfy all the above conditions.

            8. Explanatory – The narrative must explain the behaviour of economic actors, their decisions, why events develop the way they do.

            9. Predictive (prognostic) – The narrative must possess the ability to predict future events, the future behaviour of economic actors and of other meaningful figures and the inner emotional and cognitive dynamics of said actors.

            10. Prescriptive – With the power to induce change (whether it is for the better, is a matter of contemporary value judgements and fashions).

            11. Imposing – The narrative must be regarded by society as the preferable and guiding organizing principle.

            12. Elastic – The narrative must possess the intrinsic abilities to self organize, reorganize, give room to emerging order, accommodate new data com
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                ian logic which is applicable to the observable macro world).

            13. Insightful – It must inspire a sense of awe and astonishment, which is the result of seeing something familiar in a new light or the result of seeing a pattern emerging out of a big body of data ("data mining"). The insights must be the inevitable conclusion of the logic, the language and of the development of the narrative.

            14. Aesthetic – The narrative must be both plausible and "right", beautiful (aesthetic), not cumbersome, not awkward, not discontinuous, smooth and so on.

            15. Parsimonious – The narrative must employ the minimum number of assumptions and entities in order to satisfy all the above conditions.

            16. Explanatory – The narrative must explain the behaviour of economic actors, their decisions, why events develop the way they do.

            17. Predictive (prognostic) – The narrative must possess the ability to predict future events, the future behaviour of economic actors and of other meaningful figures and the inner emotional and cognitive dynamics of said actors.

            18. Prescriptive – With the power to induce change (whether it is for the better, is a matter of contemporary value judgements and fashions).

            19. Imposing – The narrative must be regarded by society as the preferable and guiding organizing principle.

            20. Elastic – The narrative must possess the 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 of the above conditions. They must also pass the crucial hurdles of testability, verifiability, refutability, falsifiability, and repeatability – all failed by economic theories. Many economists argue that no experiments can be designed to test the statements of economic narratives, to establish their truth-value and, thus, to convert them to theorems.

            There are four reasons to account for this shortcoming - the inability to test hypotheses in economics:

            1. Ethical – Experiments would have to involve humans. To achieve the necessary result, the subjects will have to be ignorant of the reasons for the experiments and their aims. Sometimes even the very performance of an experiment will have to remain a secret (double blind experiments). Some experiments may involve unpleasant experiences. This is ethically unacceptable.

            2. 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.

            3. The Psychological Uncertainty Principle – The current position of a human subject can be (theoretically) fully known. But the passage of time and the experiment itself influence the subject and void this knowledge ("time inconsistencies"). The very processes of measurement and observation influence the subject and change him.

            4. Uniqueness – Experiments in economics, therefore, tend to be unique and cannot be replicated elsewhere and at other times even if they deal with the SAME subjects. The subjects (the tested humans) are never the same due to the aforementioned psychological uncertainty principle. Repeating the experiments with other subjects adversely affects the scientific value of the results.

            5. 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 with the fabulous (=storytelling) nature of the 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, the standard theory of utility is considered valid in economics despite empirical evidence to the contrary - simply because it is aesthetic and mathematically convenient.

            So, what are economic narratives good for?

            Narratives in economics offer an organizing principle, a sense of order and ensuing justice, of an inexorable drive toward well defined (though, perhaps, hidden) goals, the ubiquity of meaning, being part of a whole. They strive to answer the "why’s" and "how’s". They are dialogic and prescriptive (=provide behavioural prescriptions). The client (let's say, a politician) asks: "Why am I (and here follows an economic problem or behaviour". Then, the narrative is spun: "The situation is like this not because the world is whimsically cruel but because...and if you were to do this or that the situation is bound to improve". The client is calmed by the very fact that there is an explanation to that which until now bothered him, that there is hope and - providing he follows the prescriptions - he cannot be held responsible for a possible failure, that there is who or what to blame (focussing diffused anger is a very policy instrument) and, that, therefore, his belief in order, justice and their administration by some supreme, transcendental principle is restored. This sense of "law and order" is further enhanced when the narrative yields predictions which come true (either because they are self-fulfilling or because some real "law"- really, a pattern - has been discovered).

            IV. CURRENT PROBLEMS IN ECONOMICS

            Neo-classical economics has failed on several fronts simultaneously. This multiple failure led to despair and the re-examination of basic percepts and tenets:

            1. The Treatment of Government

               
               Government was accorded a special status and special treatment in economic theory (unlike other actors and agents). It was alternatively cast as a saint (seeking to selflessly maximize social welfare) - or as the villain (seeking to perpetuate and increase its power ruthlessly, as in public choice theories). Both views are caricatures of reality. Governments do seek to perpetuate and increase power but they use it mostly to redistribute income and not for self-enrichment.

            2. Technology and Innovation

               
               Economics failed to account for the role of innovation in growth and development. It also ignored the specific nature of knowledge industries (where returns increase rather than diminish and network effects prevail). Thus, current economic thinking is woefully inadequate to deal with information monopolies (such as Microsoft), path dependence and pervasive externalities.

            3. Long Term Investment Horizons

               
               Classic cost/benefit analyses fail to tackle very long term investment horizons (periods). Their underlying assumption (the opportunity cost of delayed consumption) fails beyond the investor's useful economic life expectancy. Put more plainly: investors care less about their grandchildren's future than about their own. This is because predictions concerned with the far future are highly uncertain and people refuse to base current decisions on fuzzy "what ifs". This is a problem because many current investments (example: the fight against global warming) are likely to yield results only in the decades ahead. There is no effective method of cost/benefit analysis applicable to such time horizo