Mike Shedlock has an amusing post in which he describes the debate about the correct policy going on among economists as a duel between wizards:
- Keynesian wizards believe governments can spend their way to economic health and although fiscal deficits may matter at some point in time, they never matter now, in practice.
- Monetarist wizards believe money will cure any and every problem if enough is dropped from helicopters and interest rates held low.
- Austrian wizards believe that economic problems are created by unsound money, haphazard loans, excessive debts, and government manipulations.
- Keynesian and Monetarist wizards believe in the voodoo principle “the problem is the solution if only you do more of it”. The former relies primarily on fiscal voodoo, the latter relies primarily on monetary voodoo.
- Austrian wizards do not believe “the problem is the solution”, no matter how many times it is repeated.
Since I’m pretty sure the subject will come up, there’s another school of wizardry, not mentioned by Mish. As best as I can tell the new school believes that the problems of the economy can be cured if you issue enough credit. Over time that will have its own bad consequences.
I’m not an economist and I don’t belong to any school. I think that different tools work under differing circumstances and that pretty much anything can work, at least in the short term, depending on circumstances and that you need to choose the right tool for the conditions in which you find yourself. I also think that discretion is almost always bad while rules are generally better. When the incentives are high enough any policy strategy can and will be gamed.
I can’t tell you how many times over the last several years I’ve thought of a scene in from the early days of the M*A*S*H television, during the Henry Blake/Trapper John period. Radar comes in and hands a document on a clipboard to Col. Blake saying “Sign here, sir”. Col. Blake says “Radar, there’s nothing on this paper” to which Radar responds “Oh, I’ll fill in the rest later”.