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.
I expressed my concern that Larry’s non-rules-based doctor would recommend the wrong stuff saying: “You know it would be great to have the all-knowing doctor that is there in every particular situation and just continues to do the right thing. But we have a lot of experience with economic policies; it’s not just model simulations, it’s historical. You know when things have worked better, [is] when they’re more predictable, more rules-based. You have the Great Moderation period, very clear in that respect. But I think the main thing here is we have theory, we have facts, and [they suggest]…the dangers of too much discretion.”
Greater doubts about Larry’s analogy with doctors come from direct experience and facts about medical care, especially surgery. Indeed, there has been much progress in medical care over the years due to doctors using rules in the form of simple checklists, as described so well in a New Yorker article by Atul Gawande “The Checklist: If Something So Simple Can Transform Intensive Care, What Else Can It Do?” and in more detail in his book, Checklist Manifesto. (Here is an interesting Daily Show interview about his book.) Simple checklists have proved to be invaluable for preventing mistakes, getting good diagnoses and appropriate treatments. Of course doctors need to exercise judgement in implementing checklists, but if they start winging it or skipping steps the patients usually suffer. (Here’s a surgery demo).
Practical experience and empirical studies show that checklist-free medical care is wrought with dangers just as rules-free monetary policy is.