The cycle of rules and discretion in economic policy

[Winehole23]

The case for rules over discretion is not only an economic case. As Friedrich Hayek put it in The Road to Serfdom in 1944,

Nothing distinguishes more clearly conditions in a free country from those in a country under arbitrary government than the observance in the former of the great principles known as the Rule of Law. Stripped of all technicalities, this means that government in all its actions is bound by rules fixed and announced beforehand — rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given cir stances and to plan one's individual affairs on the basis of this knowledge....the discretion left to the executive organs wielding coercive power should be reduced as much as possible.

It is no coincidence that the same approach that best serves the interests of freedom and the rule of law also makes for good economics in practice. In both cases, setting out a rule and sticking to it helps policymakers resist interest-group pressure and avoid overreacting to short-term blips. It allows citizens to exercise their freedom and their judgment, and enables both the people and their leaders to keep their eyes on long-term needs and goals.


As former Treasury secretary George Shultz put it to yet another joint luncheon of the American Economic Association and the American Finance Association (this one in 1973),

"economists have a particular responsibility to relate policy decisions to the maintenance of freedom, so that, when that combination of special-interest groups, bureaucratic pressures, and congressional appe es calls for still one more increment of government intervention, we can calculate the cost in these terms...[and so] may have an impact on policy that extends beyond the most current crisis and reflects the best traditions of this discipline."

The best traditions of economics today demand an engagement with the facts of the past 60 years, informed by the theories built up in that time. Those facts and those theories argue against the recent reversion to Keynesian discretionary interventionism, and for a revival of the kinds of rules-based fiscal and monetary policies that have yielded unmatched stability and economic growth.

http://nationalaffairs.com/publicati...conomic-policy

[boutons_deux]

yes, all levels of govt must drastically cut spending in the Banksters' Great Depression.

That "rule" will certainly hasten a return to 4-5% "full" unemployment, re-inflate the Great American Dream (Myth) Machine, and consumers will start buying again.