27 December 2013

The case for non-ideological policymaking

At the end of a long review of the recent book US Federal Reserve Board ex-chairman Alan Greenspan, Robert Solow writes:

The Alan Greenspan I admired was a pragmatic central banker who was able to believe both the data and his eyes and to ignore the people who already knew the answer without looking. The author of this book makes a show of both, but not really. His eyes are too often closed and he seems to be listening to another voice, with quite conventional opinions, coming from somewhere stage right. Alan Greenspan Is Still Trying to Justify His Bad Decisions: What the maestro doesn't understand, Robert M Solow, 'New Republic', 16 December
If you are making policy, subscribing to an ideology is something of a cop-out, but very tempting all the same. Enormous quantities of data available to policymakers match the increasing complexity of our society and environment. As individuals, we cannot deal with these phenomena. In the face of so much complexity, it is so much simpler just go with our prejudices. That’s one reason we ought to subordinate policy not to ideology, but to outcomes. And that applies to any social or environmental problem with multiple causes and where a multiplicity of solutions need to be tried, refined and either terminated or promoted. In the developed world, most policy issues are that complex - the goals of monetary policy included.

Social Policy Bonds target explicit, transparent and meaningful goals, and they make rewards contingent on achieving those goals. By contracting out the achievement of social goals to the market, they maximise the efficient use of our scarce resources. A government that targets social goals, clearly and publicly, would have little use for the sort of ideologically driven policies propagated by Mr Greenspan. Monetary policy, under a Social Policy Bond regime, would instead be one means of achieving agreed social goals, rather than a way of confirming existing (and quite peculiar) prejudices in the mind of a single individual, however smart.

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