The 10 Foldvary Principles of the Economic Way of Thinking
1. Define the key terms.
2. Knowledge comes from logic and evidence.
Inductive and deductive logic.
Linear and lateral reasoning. Think for yourself.
Some evidence is probabilistic.
Evidence is always interpreted, but interpretation itself is subject to logic.
3. Economic theory enables us to understand the implicit reality beneath explicit appearances.
4. Economic costs are opportunity costs.
5. Economic decision-making is based on marginal costs and marginal benefits.
Sunk costs should be ignored.
6. Keep it real. Look at real gains, net of inflation and net of opportunity costs.
There is no economic magic.
7. Policy should be judged for its total and long-run effect, not just the short-run and local effect.
8. Differentiate between movements based on a change in price from movements that have other causes.
9. Basic economic premises are:
a) people economize or optimize
b) desires are unlimited
c) some resources are scarce
d) motivation includes both self-interest and sympathy with others
10. People are mostly rational: they have consistent preferences,
and they economize.
Therefore, returns relative to risk and cost tend to equalize.