ABSTRACT
There is a broader issue with respect to macroeconomic policy. It is apparent that not all errors in economic policy are attributable to the ignorance of politicians or their susceptibility to undue influence from special interests. Competent economists disagree, and advice is sometimes mistaken. This has led one school of thought to argue for minimizing discretionary powers in macroeconomic policy. Fiscal policy is to be left to the automatic stabilizers. Monetary policy is to be restricted to the execution of a fixed rule: Expand the money supply at a fixed annual rate of perhaps 3 percent to finance slow growth of total output. The alternative, to give monetary authorities power to use their discretion with respect to the use of their monetary tools, is said to risk mistakes that may make things worse rather than better. It seems to be overlooked that the rule would not really eliminate day-to-day discretion, but remove discretion as to proximate monetary targets.
