Five types of economic statements

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When I think about economics, I divide the discipline into five types of statements. Here are the five types:

1. Statements about what economic policy should be
2. Statements about historical economic phenomena
3. Statements about current economic phenomena
4. Statements about future economic phenomena
5. Statements about general economic phenomena

The first four types have to do with specific real world situations, while the last type has to do with universal theories. Here is an example of each type of statement:

1. The U.S. government should raise taxes on highest income earners.
2. On October 24th, 1929, the Dow Jones fell over 11% marking the start of the Wall Street Crash of 1929.
3. Current inflation in France is estimated to be about 1.3% annualized.
4. I predict that there will be a recession in the United States starting in the fourth quarter of 2018.
5. All recessions in high-income countries are preceded by a fall in housing prices.

I believe that economic models are the fifth type of statement because they describe an exact relationship between variables. An economic model can be used for prediction in the real world (fourth type), but without data input, a model is merely a statement about general phenomena.

The failure of economists to predict the 2008 financial crisis falls under the fourth type of statement. In The Big Short by Michael Lewis, hedge fund manager Michael Burry predicted the financial crisis long before anybody else. As early as 2004, Burry was analyzing the subprime mortgage market and made some significant discoveries. This is a great book and I believe it provides a glimpse into how economists can predict the future.

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What is a definition?

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What is a definition? Here is my definition:

A definition is a statement of the meaning of a word

I believe that most words have multiple meanings. Therefore, most words have multiple definitions. To deal with this, the first step in creating a definition is to figure out which meaning will be targeted.

When making a definition its important to include all of the instances that qualify and exclude all of the instances that do not qualify. Sometimes this can be very tricky, because some words represent complex concepts. I believe a good method for making a definition is to think of examples of the word being used and try to find the common denominator.

I also believe that judging the adequacy of a definition is always subjective to a degree. For example, take my definition of 'definition': a statement of the meaning of a word. Would this definition be better if I replaced the word 'meaning' with my definition of 'meaning': an underlying representation? This replacement would cause the new definition to be: a statement of the underlying representation of a word. Is the new definition better? Although I think it's close, I believe the first definition is subjectively better due to its simplicity.

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What is a concept?

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What is a concept? Here is my definition:

A concept is a mental general representation

I believe that generality is the essential aspect of a concept. For example, think of the concept 'grass'. The concept of 'grass' refers to a wide range of things. It refers to all the different types of grass and the entirety of everything grass stands for. In this regard, the concept of 'grass' is general.

I also believe that concepts are representations. For example, the concept 'fork' is not an actual fork, but instead it is a representation of a fork. In this regard, a concept represents all of the real examples of that concept.

Concepts are mental because they only exist in the mind. Reality is full of potential concepts and only the mind or viewer can create concepts.

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What is language?

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What is language? Here is my definition:

Language is written or spoken symbols

I believe that language extends beyond words. For example, the peace symbol is a form of language, yet it is not a word. Another example, the power symbol used for turning on a computer is language, yet it is also not a word.

I also believe that language excludes symbols that are not written or spoken. For example, a crown is a symbol of royalty, but it is not language. Another example, a large beard is a symbol of intelligence, but it is not language. These are two examples of symbols that are not language.

Despite it's name, I believe that body language is not a language because body language is not written or spoken. Instead, body language is a sign that conveys data. In this regard, it should be called 'body signs'.

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What is analysis?

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What is analysis? Here is my definition:

Analysis is a detailed examination of something with the purpose of drawing conclusions

I believe that analysis is not limited to a single method or set of rules. There are many different ways that a person can perform a detailed examination. Examples of analysis include writing down observations, constructing creative experiments, examining statistical data, thinking about various pieces of evidence, looking at graphs or determining the significance of something.

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What is philosophy?

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What is philosophy? Here is my definition:

Philosophy is the study of fundamental nature

I believe when people use the word philosophy, they are referring to the underlying roots of something. There are many types of 'philosophy'. For example, the 'philosophy of economics' is focused on things like the definition of economics and whether economics is a science. Another example, the 'philosophy of law' has to do with basic concepts like justice, freedom and liberty.

Philosophy in general has to do with epistemology, metaphysics, aesthetics, and ethics. Epistemology has to do with truth and how we acquire knowledge. Metaphysics has to do with transcendental reality and other dimensions. Aesthetics has to do with beauty. Ethics has do with good and bad behavior. Reality is a very complicated place and philosophy tries to study the fundamental aspects governing it.

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Philosophy of economics outline

This post is an outline of some of my posts on philosophy of economics. There are 12 posts organized into six sections.

1. What is economics?

• What is economics?

2. Evaluating economic statements

• Five types of economic statements
• Evaluating economic statements
• Belief analysis

3. Econometrics

• EconTalk: six part series on econometrics
• Macroeconomic experiments

4. Predicting future economic phenomena

• How to predict a financial crisis
• Macroeconomic predictions

5. Macroeconomics

• Transparency and world economy

6. Academic economics

• Current events and academic economics
• Critique of academic economics
• Publishing and promotion in economics

What is mathematics?

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What is mathematics? Here is my definition:

Mathematics is the study of numbers, lines and shapes

How does mathematics relate to logic? Logic is the process of forming conclusions using objective reasons or premises. I believe that logic and mathematics overlap when it comes to mathematical equations. For example, imagine that you are trying to figure out the length of the long side on a right triangle and you already know the lengths of the two short sides (a = 4, b = 3). To answer this question, you could use the Pythagorean theorem: a^2 + b^2 = c^2. Now we can solve the equation using logic:

1. a^2 + b^2 = c^2
2. a = 4
3. b = 3
4. Therefore, c = 25

I believe that solving this equation is simultaneously mathematics and logic. In this example, there are objective principles that form a conclusion and simultaneously there are numbers, lines and a shape.

I also believe that the part of mathematics that is not logic, has to do with numbers, shapes and lines in themselves. For example, think about the mathematical concept of a square. A square in itself is not a process of forming a conclusion. Therefore, shapes in themselves are not logic. The same can also be said for lines and numbers. For example, the number 8 is not a process of forming a conclusion.

To show how logic can stand on its own separate from mathematics, observe this logical argument:

1. All humans are mortal
2. Socrates is a human
3. Therefore, Socrates is mortal

This logical argument is not mathematics because there are no numbers, lines or shapes being referred to. I believe this is a clear example of non-mathematical logic.

The rest of this post is a collection of definitions of mathematics from philosophers. The purpose of showing philosopher definitions is to show the range of potential definitions and how there is no consensus.

Definitions of mathematics from philosophers

Aristotle (384-322 BC):
1. "the science of quantity" (Quoted in A History of Mathematics by Florian Cajori)

Auguste Comte (1798-1857):
2. "the science of indirect measurement" (Quoted in A History of Mathematics by Florian Cajori)

Benjamin Pierce (1809-1880):
3. "the science that draws necessary conclusions" (Quoted in Foundations of Fundamental Concepts of Mathematics by Howard Eves)

Bertrand Russell (1872-1970):
4. "all mathematics is symbolic logic" (The Principles of Mathematics, 1903)

Walter Warwick Sawyer (1911-2008):
5. "the classification and study of all possible patterns" (Prelude to Mathematics, 1955)

Intuitionism (according to Ernst Snapper 1913-2011):
6. "mental activity which consists in carrying out, one after the other, those mental constructions which are inductive and effective" (The Three Crises in Mathematics: Logicism, Intuitionism and Formalism, 1979)

Formalism (according to Ernst Snapper 1913-2011):
7. "the manipulation of the meaningless symbols of a first-order language according to explicit, syntactical rules" (The Three Crises in Mathematics: Logicism, Intuitionism and Formalism, 1979)

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Belief analysis

Belief analysis is a list of rules for displaying the structure of a belief. There are 6 rules listed below.

1. State the belief using a single sentence at the top of the page
2. List reasons to support the belief (no more than 5 reasons)
3. State each reason with a short sentence
4. After each reason, list sub-reasons to support that reason (quotes or original writing)
5. No more than 3 sub-reasons per reason
6. Each sub-reason is no longer than 3 sentences