Recent proposals for policy rules legislation have led to a fascinating replay of issues that have long been at the heart of the rules versus discretion debate. Larry Summers raised one in a debate between him and me at the American Economic Association meetings in Philadelphia and again at a conference at Stanford a week ago.  Here is how Larry started in Philadelphia (from the transcript in the Journal of Policy Modeling Vol. 36, Issue 4, 2014)

“John Taylor and I have, it will not surprise you…a fundamental philosophical difference, and I would put it in this way. I think about my doctor. Which would I prefer: for my doctor’s advice, to be consistently predictable, or for my doctor’s advice to be responsive to the medical condition with which I present? Me, I’d rather have a doctor who most of the time didn’t tell me to take some stuff, and every once in a while said I needed to ingest some stuff into my body in response to the particular problem that I had. That would be a doctor who’s [advice], believe me, would be less predictable.”

Much as the proponents of discretion in earlier rules versus discretion debates (Keynes and Hayek, Heller and Friedman), Summers argues in favor of relying on the all-knowing expert, a doctor who does not perceive the need for, and does not use, a set of guidelines, but who once in a while in an unpredictable way says to ingest some stuff or does something else...

Read the full article at Economics One, the blog of John Taylor: Central Banks Without Rules Are Like Doctors Without Checklists