An old, but forever crucial, question for monetary policy is whether it should be rules-based or purely discretionary. The Economist, in a Free Exchange article this week with the title “Rule It Out,” goes all in for pure discretion, abandoning rules-based strategy. It’s a new view compared to previous articles over the years in the magazine and, more imprtantly, not based on any new facts.
The article’s main mode of argument is to invent and then shoot down straw men. It argues, for example, that “Algorithms…should not supplant central bankers” even though no proposal out there suggests anything of the kind. It asserts that a rules-based policy is an “unnecessary constraint” on central bank “autonomy,” when experience shows that clear strategies and principles help defend autnomy. Strangely, it says that sensible flexibility built into rules-based policy demonstraes its “pitfalls” which are then never even mentioned. The article is…
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Utopia, you are standing in it! 
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