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Interesting debate about the performance of economists and the state of this science. It makes me all the more excited at starting my economics degree at the Toulouse School of Economics next week. Original article by Paul Krugman, Princeton economist and response by Bob Eisenbeis, member of the U.S. Shadow Financial Regulatory Committee and former Executive Vice President and Director of Research at the Federal Reserve Bank of Atlanta. The two articles have been copied one after the other below for your convenience. September 6, 2009 How Did Economists Get It So Wrong? By PAUL KRUGMAN I. MISTAKING BEAUTY FOR TRUTH It’s hard to believe now, but not long ago economists were congratulating themselves over the success of their field. Those successes — or so they believed — were both theoretical and practical, leading to a golden era for the profession. On the theoretical side, they thought that they had resolved their internal disputes. Thus, in a 2008 paper titled “The State of Macro”

Gold reaches $1000 per ounce for the second time in 2 years. Unfortunately, gold is a weak indicator of inflation. A historical analysis by Erik Dellith shows that the correlation between gold and inflation is only around 0.15. The table below proves that this correlation changes with time: Correlation Results of Monthly Changes Dates & Correlations Period 1: 8/76 - 6/82 Headline CPI [SA] 0.17 Headline CPI [NSA] 0.18 Period 2: 6/82 - 4/01 Headline CPI [SA] 0.07 Headline CPI [NSA] 0.03 Period 3: 4/01 - 9/06 Headline CPI [SA] 0.23 Headline CPI [NSA] 0.16 SA: Seasonally Adjusted NSA: Not Seasonally Adjusted The author concludes that The data suggest that the yellow metal reflects inflation -- although not very strongly -- mostly when prices are rising at a rapid pace. The relationship weakens significantly during times of moderate inflation.