03 April 2023
A new paper of mine has been published in "real world economics review".
Title: Why is yield-curve inversion such a good predictor of recessions?
Abstract: Yield curve inversion has traditionally been ascribed to investor expectations. This paper shows instead that it is the result of changes in real variables like investment and consumption, and that these changes are set in motion by central bank actions.
Why is yield-curve inversion such a good predictor of recessions?
08 October 2022
Peter Radford has commented on my recent paper The Giant Blunder at the Heart of General Equilibrium Theory.
The comment can be read at We Need our Hutton
01 October 2022
Until a couple of years ago I used to regularly post graphs of the monetary measure that I called Corrected Money Supply (CMS). An important part of this measure was that it estimated the amount of precautionary savings held in M1 deposits and subtracted that to arrive at an accurate measure of money. The logic was that such precautionary holdings are not intended to be spent and hence do not qualify as money.
Then in May 2020 the Federal Reserve Board merged savings and other deposits into M1, after which my old measure ceased to work. Recently I discovered that the Fed has a new series for savings deposits (https://fred.stlouisfed.org/series/MDLNM) beginning from June 2020, the month after which it changed its definition of M1.
Using the new series, I subtracted savings deposits from the new M1 to achieve continuity with the old M1 series. The results were quite surprising. In August YoY growth in Corrected Money Supply was running at 40%, suggesting that another rate increase would probably not push the US economy into recession. The graph below shows the figures. It also underlines why monetary aggregates are very important.
I do not believe that increasing interest rates will help reduce inflation. But reducing interest rates to near-zero levels merely inflates asset bubbles without boosting the real economy. Increasing interest rates now will prevent bubbles which then have to be punctured. Nevertheless, the Fed would be advised to moderate the quantum of its rate increases.
22 September 2022
My new paper The giant blunder at the heart of General Equilibrium Theory has been published in real-world economics review.
Abstract: Proofs of general equilibrium crucially hinge on establishing the existence of an equilibrium price vector that makes excess demand in all markets equal to zero. This paper shows that the so-called price vector does not meet the definition of vector, and that all proofs of general equilibrium are therefore invalid.
30 March 2022
My new paper The mathematics of profit maximisation is incorrect has been published in real-world economics review.
Abstract: Profit maximisation is one of the two main optimising principles of neoclassical economics, the other being utility maximisation. In this paper we draw on Chapter 6 of John Maynard Keynes's General Theory to show that the mathematics of profit maximization is incorrect. We show, moreover, that marginal cost, a variable fundamental to neoclassical economics, cannot be calculated. We explore the implications for sticky prices, increasing returns, the shape of the supply curve, and market clearing. Finally, we argue that an important reason for the failure of neoclassical economics is that while it pays a great deal of attention to the influence of future expectations on present decisions, it completely ignores the past.