● False Prophets of Economics Imperialism: The Limits of Mathematical Market Models
Matthew Watson
Summary via publisher (Agenda publishing/Columbia U. Press)
This book explores the consequential methodological revolution that has led to the widespread adoption of economists’ mathematical market models across various social sciences. This phenomenon, referred to as economics imperialism, has raised concerns among field specialists who fear that their expertise may wane. While mathematical models foster significant abstract reasoning, they cannot replace meticulously contextualized empirical studies of actual social dynamics. These two approaches exist in distinct realms, offering varied explanatory frameworks.
The recent election victory has sparked a notable rally in U.S. equities. However, Donald Trump’s return poses a potential risk factor, as Washington braced itself to implement a renewed “America First” policy.
The number of weekly US jobless claims dropped to a six-month low last week. “Despite many indicators suggesting a substantial decline in labor market conditions this year, the unemployment insurance data has remained resilient,” notes Lou Crandall, chief economist at Wrightson ICAP. Tuan Nguyen, an economist at RSM, adds, “The continuous decrease in new unemployment claims, which serve as an indicator of layoffs, suggests a strong rebound in payroll gains this month, reinforcing the view that the disappointing October jobs report was an outlier.”
The market premium for the US 10-year Treasury yield increased in October compared to a “fair value” estimate from CapitalSpectator.com. This marks the first premium increase since April.
US consumer inflation has risen to 2.6%, marking the first increase in pricing pressure since March. The core inflation measure (excluding food and energy costs) remained steady at 3.3%. “Recent progress on inflation appears to have stagnated,” says Michael Pugliese, a senior economist at Wells Fargo. “The Federal Reserve is approaching a point where it will indicate a slowdown in the pace of rate cuts, potentially adopting an every-other-meeting rhythm starting in 2025.”
Fed funds futures still reflect a belief in the possibility of a quarter-point reduction in the Federal Reserve’s target rate, though confidence in this forecast appears to be waning.
The US dollar index climbed to a six-month high recently, driven by expectations regarding rising inflation risks amid a second Trump presidency. Analysts believe this stems from concerns that the Federal Reserve might halt or even reverse rate-cutting initiatives if inflation spikes due to possible reflationary tactics associated with increased tariffs and other policy measures from the president-elect. Typically, higher interest rates bolster the dollar’s strength against other currencies. Win Thin, the global head of market strategy at Brown Brothers Harriman, remarked that the Fed will maintain a cautious approach moving forward, particularly given the perceived inflation risks during a potential second Trump term.
Defensive strategies are being sidelined, as evidence from the latest sector rotation in U.S. equities indicates a resurgence of animal spirits.
Small business optimism in the US climbed to a three-month high in October, yet it remains significantly below pre-pandemic levels. “With the election concluded, small business owners are likely to feel a reduction in uncertainty regarding future conditions,” predicts NFIB Chief Economist Bill Dunkelberg. “Though optimism is rising on Main Street, owners still face unprecedented economic challenges.”
In mid-September, the bond market appeared poised for a second consecutive year of recovery following a tumultuous period marked by back-to-back losses in 2021 and 2023. Since then, the market has faced challenges, with modest year-to-date gains still holding for now. However, new pressures may be building for fixed-income securities as the market adjusts to shifting inflation expectations.
